Royal Bank of Scotland

George Osborne Excerpts

Friday 1st November 2013 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

Today I can report to the House that the Government have concluded their review into the case for a Royal Bank of Scotland (RBS) “bad bank” and the new management of RBS is setting out a new direction for the bank.

The new direction for RBS, supported by the management and board of RBS, UK Financial Investments (UKFI), the Government (its biggest shareholder), and the Bank of England (its prudential regulator), will lead RBS to being a boost to the British economy instead of a burden. It is part of the Government’s economic plan for sustaining the economic recovery and creating a banking system that works for Britain. It will enable RBS to focus on its core British business, supporting British families and companies.

The new direction includes:

i) A bad bank to separate and wind-down RBS’s poorly-performing and high-risk assets that are a legacy of what went wrong in its past. This will enable RBS to look to the future and deliver its new strategy. Instead of an “external” bad bank that would require further support from the taxpayer, this will be an “internal” bad bank funded by RBS itself. This will target the wind down or sale of approximately £38 billion of assets within three years;

ii) Fully selling Citizens Financial Group in the United States and continuing to shrink RBS’s investment banking arm, generating more capital that will support more UK lending; and

iii) Creating a smaller bank with reduced costs and a new commitment to become the number one bank for small and medium-sized enterprises—measured by a newly-created independent survey to be run by the Federation of Small Businesses (FSB) and the British Chamber of Commerce (BCC).

This is a key part of rebuilding the banking system and brings us a step closer to returning RBS to the private sector. This is good news for British businesses, for the British taxpayer and for the British economy.

Already as a result of the measures announced today, the Bank of England has confirmed that the taxpayers’ exposure to the banking system can be further reduced by removing the £8 billion contingent capital facility for RBS one year early.

I have always been clear about the Government’s objectives for RBS: to support the British economy, to get the best value for money for the taxpayer, and to set RBS on a path towards return to private ownership. These were the reasons for conducting the bad bank review, which I commissioned in June. The publication of RBS’s new direction and the announcement of an internal bad bank today follows the conclusion of that review.

The review established on the basis of extensive independent advice that the benefits of an external bad bank would be marginal and uncertain. Rothschild advised that the creation of an external bad bank would do more harm than good to RBS as it would not contribute to a capital improvement, would distract management and would produce significant implementation challenges.

In contrast the announcement of this new direction for RBS demonstrates clear benefits: strengthening the firm’s balance sheet, dealing effectively with legacy assets, charting a path to improved profitability and retiring the Dividend Access Share (DAS), which will pave the way for eventual reprivatisation.

This internal bad bank, which will be based on international examples of where similar action has worked, such as the bad bank created by Citigroup in the US will help deliver the Government’s objectives for RBS, but without the extra risks to the taxpayer of an external, taxpayer-funded bad bank.

Rothschild has advised the Government that tackling RBS’s wider issues—the coherence of its strategy and the profitability of its “core” businesses—is as important for meeting the Government’s objectives as tackling its poor-performing legacy assets. It also advised that the new strategy announced by RBS should over time address many of the bank’s challenges and areas of investor concern, which in the longer term should be reflected in an improved valuation and improve the prospects for an earlier return of RBS ownership to the private sector.

When the DAS is retired—on which the Treasury and RBS are now in advanced negotiations with the European Commission—this should also make RBS shares more attractive to external investors and bring forward the day when taxpayers can get their money back.

The Bank of England will play a continuing role in overseeing the implementation of the new direction as part of its ongoing supervision of the firm. The shareholder value implications of this plan have been reviewed by UKFI, who will oversee the development and implementation of RBS’s strategy in line with their mandate to act commercially and in the best interests of the taxpayer as shareholder.

Help to Buy

George Osborne Excerpts

Tuesday 8th October 2013 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Government are committed to supporting people who aspire to become homeowners. Since the financial crisis, increased deposit requirements and falling equity values have left many hardworking households unable to get on to the housing ladder or trapped in homes unsuited to their aspirations and needs. This has particularly impacted first-time buyers, who have found it increasingly difficult to purchase their own home.

The Government have today published final scheme rules and a commercial fee for the Help to Buy: mortgage guarantee scheme, which was announced at Budget 2013. The Help to Buy: mortgage guarantee has been designed to increase the availability of high loan to value mortgages to borrowers who are able to afford the monthly repayments but who are unable to save the large deposits required by lenders since the financial crisis.

The publication of the final scheme rules enables lenders to sign up to the scheme three months earlier than planned and start offering mortgages under the scheme. As a result, a number of lenders will begin offering high loan to value mortgages to borrowers. These mortgages will be entered into the scheme in January. In the coming months, the Government expect more lenders to sign up.

The Help to Buy: mortgage guarantee scheme is open to all lenders with permission to enter into regulated mortgage contracts in the UK. The scheme rules set out the eligibility criteria that a lender will need to apply to every loan they wish to place within the scheme. Both new and existing properties are eligible, but in order to be eligible the loan must:

be on a property in the UK;

be on a property with a purchase price of £600,000 or less;

be a residential mortgage, and not buy-to-let;

be a repayment mortgage, not interest only;

be for the buyer’s only property (i.e. it cannot be used for second homes);

not be used as part of a shared equity or ownership scheme;

not be subject to another guarantee (whether provided by the Government or by anyone else).

The scheme rules also contain safeguards to ensure that lending under the scheme is responsible. For each loan, participating lenders will need to demonstrate that the borrower was subject to an affordability test, that the loan will remain affordable if there is a rise in the interest-rate, and that the lender has verified the borrower’s income. For each loan the lender will also need to be able to demonstrate that the borrower was not “credit impaired” (using the definition from the Financial Conduct Authority).

These safeguards on responsible lending are complemented by other features of the scheme which ensure that the taxpayer is protected. If a lender chooses to participate in a given category of lending, they will be required to put all eligible loans that they originate in that category into the scheme. There are nine categories in total, with participation in each LTV band (80-85%, 85-90% and 90-95% LTV) split into three categories depending on whether the lender chooses to participate for loans for new house purchase only, or also for different types of remortgage transaction. This approach, whereby all eligible loans must be put into the scheme, ensures that lenders cannot only use the scheme for their riskiest loans.

The Government have also today published the fee that lenders participating in the scheme in 2014 will pay when purchasing a guarantee. The fee charged to lenders will differ depending on the loan to value of the mortgage. As set out in the scheme outline document published alongside the Budget, the fee has been calculated so that the scheme is self-financing and adheres to European Commission guidance on state aid. The fee therefore contains three elements: administration cost, cost of capital and expected losses. The fee will be reset on an annual basis to take account of any changes in the macro-economic forecast and using data on mortgages already guaranteed under the scheme. Lenders will be given the final fee for the following year three months in advance. The fee levels for 2014, which will be charged as a percentage of the original loan balance, will be:

90 basis points for loans with a loan to value of more than 90% and less than or equal to 95%;

46 basis points for loans with a loan to value of more than 85% and less than or equal to 90%;

28 basis points for loans with a loan to value of at least 80% and less than or equal to 85%.

To ensure the ongoing stability of the UK housing market, the Government have built a role into the scheme for the Financial Policy Committee (FPC). The Chancellor has asked the FPC to work with him every September, starting in 2014, to assess the ongoing impact of the Help to Buy scheme. Following that annual assessment he has proposed that the FPC advise him on whether the key parameters of the scheme—the house price cap and the fee charged to lenders—remain appropriate. At the end of the scheme’s three-year life, if a future Government propose to extend the scheme, the FPC will be asked to give its assessment of the impact of the scheme on financial stability and advise whether it should be continued.

The Government will make available up to £12 billion of guarantees to support the scheme during its three-year life.

Copies of the scheme rules have been placed in the Libraries of both Houses.

Oral Answers to Questions

George Osborne Excerpts

Tuesday 10th September 2013 Commons Chamber

[John Cryer (Leyton and Wanstead) (Lab)]

1. What recent comparative assessment he has made of trends in real wages in the UK and in similar economies.

[The Chancellor of the Exchequer (Mr George Osborne)]

The hon. Gentleman asks about trends in real wages. The main deterioration in wages and salaries was from 2007 to 2009 when growth fell from 5.7% to minus 0.6%. This is a vivid reminder of the damage that the great recession did. The Government have taken continued action to help with the cost of living so that last year real household disposable income grew by 1.4%, the fastest growth for three years. Of course, however, these remain difficult times for families, and the only way to deliver improved living standards for the long term is a sustained, balanced economic recovery with low mortgage rates, more jobs and more income tax-free. Our economic plan is delivering that. The Opposition’s plan for more spending and more borrowing would make things worse.

[John Cryer]

Well, that is one of the most vacuous answers I have ever heard, and that is against some very stiff competition. In the past three years real wages in this country have fallen lower than in any G20 country bar one—we are second from bottom. For how long is that going to be sustainable?

[Mr Osborne]

Let us be clear: this country had one of the deepest recessions of any of the countries in the G20 or anywhere else. We had one of the biggest banking crises and our country has had to recover from that, but I point out that in the hon. Gentleman’s own constituency there are now 12,000 more people in work than at the time of the election, and unemployment is down by a third.

[Mr Andrew Tyrie (Chichester) (Con)]

What contribution has real wage restraint in the private sector made to the surprisingly low level of insolvencies in the UK compared with our competitors, which is now enabling more firms to take advantage of the recovery than would otherwise be the case?

[Mr Osborne]

My hon. Friend is absolutely right that wage restraint in the private sector and the public sector has helped preserve jobs during the economic shock that we experienced under the previous Government. That is partly a credit to the labour market flexibility of the policies that previous Governments introduced in the 1980s and early 1990s and the last Government did not reverse. The wage restraint has helped us preserve more jobs than would otherwise have been the case in the public sector, which is why at least until recently it was supported by the Labour party.

[Graeme Morrice (Livingston) (Lab)]

23. Will the Chancellor confirm, however, that after three years of flatlining growth and with prices still rising faster than wages, working people are on average £1,500 a year worse off than in 2010?

[Mr Osborne]

People have been helped with their low mortgage rates which our credible economic policy is delivering. They are helped by the increase in the personal allowance—£600 this year, £700 next year. They will be helped by our tax-free child care, but above all they are helped by an economy that is turning the corner. The worst thing for living standards, the worst thing for household incomes, would be a return to the disastrous economic policies of the Labour party.

[Mr Julian Brazier (Canterbury) (Con)]

Does my right hon. Friend agree that the trend in real wages further emphasises the need to hold down social security spending?

[Mr Osborne]

Of course, the key thing about social security and welfare is that it should encourage people into work. One of the remarkable achievements of my right hon. Friend the Secretary of State for Work and Pensions is that the number of workless households is now at a record low in this country. That is a huge achievement. Since the Opposition have been raising all these questions about living standards and wages, perhaps they would like to hear what the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), a member of their shadow Cabinet, has been saying. He said:

“From 2004 onwards…families on ‘median incomes’—millions of workers—…were feeling the strain…people were working just as hard as ever—but were not getting on”.

He presented his findings to the Cabinet in 2010 but they got buried:

“We picked it up too late. It was very late in the day, is the truth”.

[Rachel Reeves (Leeds West) (Lab)]

The truth is that working families have paid the price for the three years of flatlining under this Chancellor. Prices have risen faster than wages for 37 of the 38 months that he has been in office. I have a quiz question for the Chancellor this morning. Can he tell the House which one of those 38 months is the odd one out and why?

[Mr Osborne]

First, may I welcome the hon. Lady back and congratulate her and her husband Nick on the birth of their baby, Anna?

There has been wage restraint in the public sector, but I thought that, as shadow Chief Secretary, the hon. Lady supported that. When she gave her speech about fiscal discipline before going on maternity leave, she supported wage restraint in the public sector. I am not clear whether she has changed her policy.

[Rachel Reeves]

The right hon. Gentleman obviously does not get the bonus point. He might find the truth embarrassing, but I must tell the House that the only month in which real wages rose was the month when bank bonuses soared by 80%, as the highest paid took advantage of his tax cut for millionaires. Rather than cutting taxes for the richest, why does he not help families facing the cost of living crisis on his watch?

[Mr Osborne]

When the shadow Chancellor was the City Minister, bank bonuses were £14 billion a year. They are now a fraction of that. Indeed, the income tax rate in every year of this Government is higher than in any year of the previous Government. By the way, inequality is now at its lowest level in this country since 1986. We have taken difficult decisions and tough action to ensure that our economy turns the corner. All those things were opposed by the Labour party, but as a result, because of low mortgage rates, because of the large tax-free allowance and because we are creating jobs in the economy, we can hold out the prospect of an improvement in the long-term living standards of the British people.

[Mike Thornton (Eastleigh) (LD)]

Does the Chancellor agree that taking 2.7 million taxpayers out of income tax through a higher allowance—a Liberal Democrat policy—will help improve living standards?

[Mr Osborne]

It is a policy being delivered by a Conservative Chancellor and a Liberal Democrat Chief Secretary. The hon. Gentleman is right that together we have taken millions of the low-paid out of income tax. Of course, that is also delivering a tax cut to 25 million working people, and there is more to come next April. It is one of the ways that, by securing the economic recovery and having credible policies with the public finances, we can help people by, for example, increasing the tax-free allowance.

[Kerry McCarthy (Bristol East) (Lab)]

2. What recent assessment he has made of the effect of fiscal policy on family incomes.

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[Dr Phillip Lee (Bracknell) (Con)]

13. What recent steps he has taken to support small businesses.

[The Chancellor of the Exchequer (Mr George Osborne)]

This year the Government are taking further steps to help small businesses. We have increased the investment allowance tenfold, and from next April we will introduce a new employment allowance worth £2,000 for every small employer, taking around one third of small employers out of employer national insurance contributions altogether. From next Monday we will help small businesses get the best deal from their banks by guaranteeing that they can switch their accounts within seven days. That service will also be available to families, which is real choice and competition in banking being introduced by the Government.

[Steve Brine]

I thank the Chancellor for that answer. I know he will want to welcome the new business centre I opened recently in the centre of Winchester, which is part of our plans to find and develop new start-ups. That is all happening in the light of increased business confidence, increased takings and reduced vacancies on the high street. Will he therefore join me in backing Winchester city council, which is working strongly in partnership with the business improvement district to help drive recovery in my area?

[Mr Osborne]

I certainly welcome that. I met members of my hon. Friend’s local authority who came to Downing street to tell me about the business improvement district. That involves the local council, the local MP and local businesses working together to attract jobs and investment to Winchester. I congratulate him on the leadership he has shown.

[Dr Phillip Lee]

In the past year, 502 small businesses have been set up in my constituency, which is a 12.6% increase on the previous year. Does the Chancellor agree that further extending rate relief to new small businesses will both help them and inspire other people to set up new businesses in the economically vibrant part of the world that I have the privilege to represent?

[Mr Osborne]

We have had rate relief for small businesses—I have announced that in previous fiscal statements, and my hon. Friend must wait for further announcements—but we are also helping businesses with the employment allowance. That major change in the tax system means we are taking a third of small businesses out of employer NICs. Four hundred and fifty thousand small businesses will benefit, which I hope is welcomed on both sides of the House.

[Ms Margaret Ritchie (South Down) (SDLP)]

Given the need to underpin local economies, what progress has been made toward reviewing the current approval criteria for a simplified import VAT accounting scheme? That would enable new businesses, but particularly import businesses, to be underpinned.

[Mr Osborne]

I will write to the hon. Lady on her specific point, to which I do not currently have an answer. However, more broadly, the Government are open to ways in which to make the VAT system and the business tax system simpler. We have created the Office of Tax Simplification, which has specifically looked at the burden on small businesses. I will take what she says as a submission.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

I wonder whether I could yank the Chancellor out of his complacency for one moment. Is he aware that, in the year since the funding for lending scheme was announced, lending to small and medium-sized businesses is, on the most recent figures, negative? Is he aware that that is symptomatic of a broader failure on investment under his reign?

[Mr Osborne]

Gross lending is up under the funding for lending scheme, which we operate jointly with the Bank of England. We are aware of the specific challenge of small business finance, which is why, just before the summer, with the previous Governor, we launched a focus of the scheme on small business funding.

The hon. Gentleman says investment is failing under this Government. He is an MP from the midlands. Given his personal history, I would have thought he would welcome the announcement by Jaguar Land Rover of the 1,700 jobs being created in Solihull. As he well knows, four years ago there was a choice of closing either Castle Bromwich or Solihull. Not only are both open, but a huge investment in the new technology of ultra-light cars is coming along with 1,700 new jobs. The hon. Gentleman is a midlands MP and used to work for the company, so I would have thought he would welcome that.

[Mr Brooks Newmark (Braintree) (Con)]

19. I met the Braintree district business forum last week. The feedback was very positive—the economy is turning around and demand for business is growing—but, as businesses grow, they face a working capital squeeze. What are the Government doing to enable businesses to access working capital more easily?

[Mr Osborne]

The business bank is up and running, and £300 million is in the market to help support small business lending. My hon. Friend has gone around the country promoting some of the investment tax breaks we have provided, such as the seed investment tax break, which provides that crucial, early-stage capital so that the many businesses now being created have the money to grow.

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

I am glad the Chancellor mentioned the banks. The small businesses in my constituency report that the predatory and risk-averse nature of the banks is still their biggest problem. One particular company has large contracts, including one in Parliament, which the banks have funded and which has just got started on time—the company is tooling up. However, the bank is now talking about stripping its assets and threatening its viability. What can the Chancellor do to stop banks in this country being so risk-averse and get them to support business?

[Mr Osborne]

That is a good question from the hon. Gentleman. The repair of the financial system perhaps remains one of our biggest domestic economic challenges. We are conducting a review of the future structure of the Royal Bank of Scotland and I will report back to Parliament this autumn on that specifically. More generally on the banking system, the funding for lending scheme, as a monetary intervention, has helped to support lending. Account switching, which will be possible from next Monday as the result of Government pressure, will help small firms to change their bank account much more easily and, as a result, get a better service.

[Simon Kirby (Brighton, Kemptown) (Con)]

20. Unemployment in Brighton Kemptown is falling, although there is still much to do. Does my right hon. Friend agree that the £2,000 cut in jobs tax will help small businesses in Brighton take on more staff and get even more people into work?

[Mr Osborne]

My hon. Friend is absolutely right. It is not just jobs that are being created in Brighton; there has been an increase in the number of businesses being created, too. Employment allowance is coming in and people will see that as a real way of helping small businesses with the cost of labour. That should help them employ more people and help the people who are already employed. That is just one example of what we are doing to ensure that this is a balanced private sector recovery, and that we do not repeat the mistakes of the past.

[Dame Anne Begg (Aberdeen South) (Lab)]

Her Majesty’s Revenue and Customs expects businesses to provide real-time information, which a lot of small businesses find either very difficult or impossible to do. What help will be put in place to ensure that they are able to move on to the new system? Even if universal credit eventually comes into being, it will depend on that information.

[Mr Osborne]

Some 90% of businesses are on real-time information. Of course, the transition to any new system is a challenge, but the new system will be much easier for small businesses, and all businesses, to keep an accurate account of their tax payments, and that will help them. We have phased it in so that small businesses, in particular, have time to prepare. This is a real improvement on a tax system that was many decades old and had not kept up with modern technology.

[Sir Bob Russell (Colchester) (LD)]

Will the Chancellor consider abolishing business rates for small retail establishments, and to make that fiscally neutral by putting a levy on out-of-town car parks?

[Mr Osborne]

I am not sure about the out-of-town car park part of the question, because I want to encourage retail and employment wherever they happen. We are aware of the challenge on our high streets, particularly for small retailers. The Government have, in previous Budgets and autumn statements, extended relief from business rates for small businesses, which has meant that many of the smallest firms do not pay business rates. I will take the suggestion as a good submission for a future fiscal statement.

[Ann McKechin (Glasgow North) (Lab)]

6. What recent progress he has made on implementation of the mortgage guarantee scheme.

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[John Robertson (Glasgow North West) (Lab)]

T1. If he will make a statement on his departmental responsibilities.

[The Chancellor of the Exchequer (Mr George Osborne)]

The core purpose of the Treasury is to ensure the stability and prosperity of the economy.

[John Robertson]

I thank the right hon. Gentleman for that extensive answer. He was boasting yesterday that he had saved the country, while we have people struggling with electricity bills, transport costs and food prices are up, people on the same wages are getting less and less for their money, and zero-hours jobs mean that people cannot get a mortgage or a loan, unless it is a payday loan. What would the Chancellor say to those people?

[Mr Osborne]

I could give a more extensive answer and point out that, in Glasgow North West, which the hon. Gentleman represents in this Parliament, the claimant count is down this year and employment is up. In other words, we are turning the corner and putting right what went so disastrously wrong under the previous Government.

We have now had 50 minutes of this Treasury Question Time, and we are hunting for a Labour economic policy. We have not heard one advocated yet; maybe we will get one soon.

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

T2. Many of my constituents have been adversely affected by the troubles at Equitable Life. May I please ask the Chancellor, on their behalf, for an update on the Government’s position?

[Mr Osborne]

I said in the Budget that we would make special ex gratia payments to Equitable Life policy holders who had bought their with-profits annuity before 1992. I said that we would try to make those payments as soon as possible, and I am pleased to be able to tell the House and the constituents of my hon. Friend, who represents them so well, that we can make those payments in this financial year, rather than in the next one as we originally predicted. We will shortly be writing to those annuitants with more information, but I can confirm that they will receive the money directly, without having to make an application. We are doing this not because we are legally obliged to do it but because, quite simply, it is the right thing to do.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

On growth, on living standards, on the deficit, on every test that the Chancellor set himself, his economic plan has failed. Since 2010, growth has been not 6.9% but 1.8%, families have been worse off not better off, and the deficit has not gone down to £60 billion but is stuck at £120 billion. How on earth can the Chancellor now claim that his economic plan has worked? After three wasted and damaging years, does he not realise that he cannot just airbrush out his failure?

[Mr Osborne]

The shadow Chancellor cannot airbrush out his predictions. He said:

“Britain’s double-dip recession is even deeper than first thought”,

but there was no double-dip recession. He also said that it was a “complete fantasy” that private sector job creation would replace losses in the public sector, but it has done so three times over. And three months ago, he said that our policy would choke off the recovery. The fact is that he cannot stand the fact that the economy is recovering and his plan would have been a disaster. Let us fear that the predictions about his own future in the shadow Cabinet turn out to be more accurate than his predictions about the British economy.

[Ed Balls]

Three years ago, this Chancellor did choke off the economic recovery. That is what happened, and his arrogant complacency will jar with millions of ordinary families who, even with growth returning at last, are still worse off because of his failing plan. Let me ask him who is benefiting from his policies. Can he confirm what the Office for National Statistics reported last month—namely, that the incomes of the highest earners were boosted in April because they delayed receiving their bonuses by a month in order to benefit from the tax cut for people earning more than £150,000 a year? The wealthy might be celebrating with the Chancellor, but everyone else thinks that he is completely out of touch.

[Mr Osborne]

I hope this is not our last encounter across the Dispatch Box, because we are enjoying this. We are enjoying the fact that the shadow Chancellor simply does not admit to the mistakes he made, not only in office but in opposition. He is increasingly like Monty Python’s black knight defending that bridge. When unemployment falls, he says that it is but a scratch; when business confidence rises, he says, “I’ve had worse”; the recovery—it is just a flesh wound. The limbs are falling off his economic argument, and it would be a comedy if it were not for the fact that Labour’s economic policies were a tragedy for this country.

[Stephen Mosley (City of Chester) (Con)]

T6. Next week, along with the university of Chester riverside innovation centre, I am organising a small business fair in Chester to try to encourage people to set up their own small businesses. Will my right hon. Friend the Chancellor tell us what the Government are doing to encourage people to set up their own businesses and create jobs in addition to the 1.3 million that have already been created in the private sector?

[Mr Osborne]

There is a record number of business start-ups in this country at the moment, and I congratulate the business community and people in Chester who want to set up their own business. We are doing everything we can to support them. The new employment allowance will help many hundreds of businesses in my hon. Friend’s constituency. Together, as Cheshire MPs, we can of course make a broader argument that Cheshire is a great place to invent.

[Kelvin Hopkins (Luton North) (Lab)]

T3. To sustain strong economic growth, to restore full employment and to support manufacturing for the long term, it is vital to establish an appropriate exchange rate. Does the Chancellor accept that case and, if so, what is he doing about it?

[Mr Osborne]

I make it a practice, like previous Chancellors, not to comment on the exchange rate, but let me make a broader point about monetary policy. At the Budget, I set a remit for the Bank of England to consider the use of forward guidance. Since we last met, the Monetary Policy Committee has, of course, made an independent judgment to take that up and has made a very clear statement about the future path of interest rates.

[Graham Evans (Weaver Vale) (Con)]

T7. Does my right hon. Friend the Chancellor agree that manufacturing surging to a three-year high and investment intentions rising to a six-year high show that this Government are committed to securing a balanced economy?

[Mr Osborne]

My hon. Friend, who is my constituency neighbour, knows as I do that manufacturing businesses are doing better now. Orders are up and exports, particularly to the new emerging markets, are up. In Daresbury in my hon. Friend’s constituency, we are committed to making sure that the manufacturing businesses at the cutting edge of technology get support, and we will continue to do that.

[Karl Turner (Kingston upon Hull East) (Lab)]

T4. I congratulate the Chancellor on his comedy haircut, but let me tell him that his policies are not very funny for people in my constituency, who are at least £1,500 a year worse off than they were in 2010. Does he accept that a certain few at the top are better off under his policies?

[Mr Osborne]

I have not heard in the 54 minutes of these questions either an apology for what happened under the Labour Government or a single economic policy being advanced. If the Labour party is against our welfare cuts or spending cuts, let it have the courage to get up and say that it would reverse them. We have not heard that at all in this questions session.

[Kwasi Kwarteng (Spelthorne) (Con)]

T8. My right hon. Friend is well aware that 80% of the employment in my constituency comes from the private sector. Will he tell us his plans for increasing private sector involvement in the economy and for giving that vital sector some support?

[Mr Osborne]

Of course one of the key things as the economy recovers is not to make the mistakes of the past and not to have the unbalanced economy that we had before the financial crash, when, for example, even in the boom years, private sector employment fell in some regions such as west midlands. What we must do in my hon. Friend’s constituency and elsewhere is support small businesses that are starting up, get the capital to the small businesses that want to expand and encourage the big companies to invest. In all those areas, there is positive news, but we have to stick at it.

[Chris Williamson (Derby North) (Lab)]

T5. Yesterday, the Chancellor said that those who opposed austerity had lost the argument, but wages are falling, child poverty is increasing and he is presiding over the slowest economic recovery in over 100 years. Unless the Chancellor is living in cloud cuckoo land or residing on planet Zog, he will surely admit that his record of economic competence has been less than satisfactory—

[Mr Speaker]

Order. I am sorry, but we have a lot to get through, so much shorter questions are required.

[Mr Osborne]

On planet earth, we inherited an economic mess, and we are putting it right. As I say, if Labour Members are serious about advocating an alternative economic plan, perhaps they would tell us today—perhaps someone will stand up and tell us—whether they oppose our spending cuts and would reverse them. We have not heard that today.

[Eric Ollerenshaw (Lancaster and Fleetwood) (Con)]

T9. Will my right hon. Friend continue his support for specific major infrastructure projects such as superfast broadband, rail electrification and High Speed 2, which should begin to address the divide between north and south that grew so much wider under the previous Government?

[Mr Osborne]

I strongly agree with what my fellow north-west MP has said. I think that investment in infrastructure is important, whether it is investment in superfast broadband for rural areas in Lancashire, investment in the northern rail hub—which, although it was campaigned for by parties on all sides in the north of England for years under the last Government, did not happen then, but is happening under this Government —or, indeed, investment in High Speed 2, which will help to change the economic geography of the country, and will ensure that all parts of it benefit from the economic recovery. I absolutely agree with my hon. Friend: those things need to go ahead.

[Chris Ruane (Vale of Clwyd) (Lab)]

T10. What assessment has the Chancellor made of the impact of zero-hours contracts on the health and well-being of British workers, and also on the consumer confidence of the hundreds of thousands of workers who are on such contracts?

[Mr Osborne]

The Department for Business, Innovation and Skills is investigating zero-hours contracts. It is seeking to establish whether there is abuse, and, if there is abuse, what we should do about it.

The Labour party seems to have suddenly discovered this issue. I do not remember a single Minister ever raising it when Labour were in government. Moreover, a number of Labour councils use zero-hours contracts.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Although the economy is improving, I am afraid that the same cannot be said of the deputy Chancellor—[Interruption.]

--- Later in debate ---

[Mr Speaker]

I will grant the right hon. Gentleman an Adjournment debate on the matter if he judges it to be necessary after he has heard the reply to his question. We shall see—but I am grateful to him.

[Mr Osborne]

Let me say first that the shadow Chancellor was in effect the deputy Chancellor for 13 years, when the economy became so unbalanced and we experienced the biggest crash in modern history.

My right hon. Friend raised a serious question about the separation of retail and investment banking and about, in effect, Glass–Steagall-like reforms or a Volcker rule in the United Kingdom. We asked John Vickers— whom he mentioned—to look into the issue, along with a serious commission of experienced people, and they concluded that ring-fencing retail banks was a better solution. That is what we are legislating for, and it shows that we are learning from the mistakes of what went so badly wrong when that deputy Chancellor was in charge of the City.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

As the Chancellor knows, a large number of small and medium-sized enterprises were let down by the conventional banking system. Many are finding that crowdfunding is a useful way of enabling them to start up and grow. Will he and the Secretary of State for Business, Innovation and Skills be very cautious before introducing unnecessary regulation to curb crowdfunding, which is a good thing for most small businesses?

--- Later in debate ---

[Richard Fuller (Bedford) (Con)]

Worse than the shadow Chancellor’s talking down of the British economy is the Labour party’s love of the jobs tax, which reduces employment, depresses wages and discourages enterprise. Will my right hon. Friend think about what he will do with the employment allowance next year, and see whether he can reduce it further so that we can reverse those trends?

[Mr Osborne]

I well remember my trip to Bedford with my hon. Friend before the 2010 election, when we were campaigning against the jobs tax which was the Labour Government’s solution to rising unemployment. This Government are adopting the opposite approach. We are taking taxes off jobs, and from next April there will be a new employment allowance that will help the many businesses in Bedford and throughout the country. That is just one example of what we are doing to fix what went so badly wrong.

ECOFIN

George Osborne Excerpts

Monday 15th July 2013 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

A meeting of the Economic and Financial Affairs Council was held in Brussels on 9 July 2013. The following items were discussed.

Presentation of the Lithuanian Presidency Work Programme

The presidency outlined its work programme on economic and financial matters for July to December 2013.

Follow-up to the European Council on 27-28 June 2013

ECOFIN held an exchange of views on the follow-up to the June European Council.

Adoption of the euro by Latvia

ECOFIN adopted the legal acts enabling Latvian accession to the euro in January 2014.

Implementation of the two-pack

Ministers endorsed the code of conduct for the euro area member states on draft budgetary plans and on content and scope of the reporting obligations for euro area member states subject to an excessive deficit procedure.

Follow-up to G20 Finance Deputies meeting on 6-7 June (St Petersburg) and preparation of G20 Meeting of Finance Ministers and Governors of 19-20 July (Moscow)

Council agreed the EU terms of reference for the forthcoming G20 Finance Ministers’ and Central Bank Governors’ meeting. The presidency and the Commission reported back to Council on the meeting of the G20 Finance Deputies meeting on 6-7 June.

Any other business—Current legislative Proposals

The presidency updated Council that provisional agreement had been reached with the European Parliament on the market abuse directive/market abuse regulation.

ECOFIN

George Osborne Excerpts

Monday 8th July 2013 Written Statements

[The Chancellor of the Ex chequer (Mr George Osborne)]

A meeting of the Economic and Financial Affairs Council will be held in Brussels on 9 July 2013. The following items are on the agenda to be discussed.

Presentation of the Lithuanian Presidency Work Programme

The presidency will present its six-month work programme for ECOFIN.

Follow-up to the European Council on 27-28 June 2013

Ministers will hold an exchange of views on the June European Council conclusions.

Adoption of the euro by Latvia

Following the recommendation adopted at June ECOFIN and the positive assessment of Latvia’s convergence programme and criteria at European Council, ECOFIN will adopt the legal acts concerning the adoption of the euro by Latvia.

Implementation of the two-pack

The Council will seek to endorse the code of conduct for the euro area member states on draft budgetary plans and the Council will be invited to confirm its intention not to raise objections to the delegated regulation proposed by the Commission, on content and scope of the reporting obligations for euro area member states subject to an excessive deficit procedure.

Follow-up to G20 Finance Deputies meeting on 6-7 June (St Petersburg) and preparation of G20 Meeting of Finance Ministers and Governors of 19-20 July (Moscow)

The presidency and the Commission will debrief Ministers on the G20 Finance Deputies meeting. Council will then be invited to endorse the EU terms of reference for the forthcoming G20 Finance Ministers’ and Central Bank Governors’ meeting.

Any other business—Current legislative proposals

The presidency intends to give a state of play update on the market abuse directive/market abuse regulation.

Spending Review

George Osborne Excerpts

Wednesday 26th June 2013 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

This coalition came into office with a commitment to address with firmness and resolve one of the biggest economic crises of the post-war era. The action we have taken, together with the British people, has brought the deficit down by a third, helped a record number of people into work, and taken our economy back from the brink of bankruptcy; and it allows us to say that while recovery from such a deep recession can never be straightforward, Britain is moving out of intensive care, and from rescue to recovery.

Today we announce the latest action to secure the recovery. We act on behalf of every taxpayer and every future taxpayer who wants high-quality public services at a price our country can afford. We act on behalf of everyone who knows that Britain has got to live within its means. We have applied three principles to the spending round I will set out today: reform, to get more from every pound we spend; growth, to give Britain the education, enterprise and economic infrastructure it needs to win the global race; and fairness, making sure we are all in it together by ensuring those with the broadest shoulders bear the largest burden and making sure the unfairness of the something-for-nothing culture in our welfare system is changed.

We have always understood that the greatest unfairness was loading debts on to our children that our generation did not have the courage to tackle ourselves. We have always believed, against much opposition, that it is possible to get better public services at lower cost—that you can cut bureaucracy and boost enterprise by taking burdens off the back of business. In the face of all the evidence, the opposition to these ideas has collapsed into incoherence. We have always believed that the deficit mattered—that we needed to take tough decisions to deal with our debts—and the opposition to that has collapsed into incoherence too. Today I announce the next stage of our economic plan to turn Britain around.

Let me start with the overall picture on spending. In their last year in office, the previous Government were borrowing £1 in every £4 that they spent. It was a record for a British Government in peacetime and a calamitous risk with our economic stability. As the note we saw again this week from their outgoing Chief Secretary put it,

“I’m afraid there is no money.”

So we acted immediately. Three years ago, we set out plans to make savings and to reduce our borrowing. Instead of the £157 billion the last Government were borrowing, this year we are set to borrow £108 billion pounds: that is £49 billion less in borrowing. That is virtually the entire education budget.

So we have made real progress, putting right what went so badly wrong. But while we have been acting, the challenges from abroad have grown: a eurozone in crisis, rising oil prices, and the damage from our own banking crisis worse than anyone feared. The truth is that we have to deal with the world as it is, not as we would wish it to be, so this country has to continue to make savings. I can report to the House that the biggest single saving we have made in government is the £6 billion a year less we are paying to service our debts than the previous Government budgeted for. Bear that number in mind when you hear the Opposition complaining about cuts.

The deficit has come down by a third, yet at over 7% it remains far too high, so we must continue to take action—not just because it is wrong to go on adding debts to our children’s shoulders, but because we know from the global turbulence of the last few years that the economic risks are real and the recovery has to be sustained. If we abandoned our deficit plan, Britain would be back in intensive care. So the figures today show that until 2017-18, total managed expenditure—in other words, the total amount of Government spending—will continue to fall in real terms at the same average rate as it is falling today.

The task before us today is to spell out what that means for 2015-16. Total managed expenditure will be £745 billion. To put that huge sum into context, consider this: if Government spending had been allowed to rise through this Parliament at the average rate of the last three decades, that total would have been £120 billion higher. This Government have taken—[Interruption.]

[Mr Speaker]

Order. The Chancellor must not have to shout to be heard. Members know that I will always accommodate the interests of Back Benchers on both sides in scrutinising these matters intensively, but the Chancellor and, in due course, the shadow Chancellor must be properly and fairly heard.

[Mr Osborne]

This Government have taken unprecedented steps to achieve that expenditure control. Now we need to find £11.5 billion of further savings. I want to pay a personal tribute to my right hon. Friend the Chief Secretary for the huge effort that he has put into delivering them. Finding savings on that scale has not been easy. These are difficult decisions that will affect people in our country, but there never was an easy way to bring spending under control. Reform, growth and fairness are the principles. Let me take each in turn.

I will start with reform and the obligation that we all have in this House to ensure that we get more for every pound of taxpayers’ money that we spend. With the help of my right hon. Friend the Minister for the Cabinet Office, we have been combing through Whitehall, driving out costs, renegotiating contracts and reducing the size of government. Cutting money that the previous Government were spending on marketing and consultants, reforming Government IT and negotiating harder on behalf of the taxpayer have already saved almost £5 billion. In this spending round, we will find a further £5 billion of efficiency savings. That is nearly half of the total savings we need to achieve.

We are reforming pay in the public sector. We are holding down pay awards, and public sector pay rises will be limited to an average of up to 1% for 2015-16. However, the biggest reform that we will make on pay is to automatic progression pay. That is the practice whereby many employees not only get a pay rise every year, but automatically move up a pay grade every single year, regardless of performance. Some public sector employees see annual pay rises of 7%. Progression pay can at best be described as antiquated; at worst, it is deeply unfair to other parts of the public sector that do not get it and to the private sector that has to pay for it. So we will end automatic progression pay in the civil service by 2015-16, and we are working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police. The armed forces will be excluded from those reforms.

Keeping pay awards down and ending automatic progression pay means that, for every pound we have to save in central administration, we can better limit job losses. I do not want to disguise from the House the fact that there will be further reductions in the number of people working in the public sector. The Office for Budget Responsibility has forecast that the total number of people working for the Government will fall by a further 144,000 by 2015-16. I know that for those who are affected that is difficult. That is the consequence of the country spending far beyond its means.

When I presented the spending round three years ago, I said that about half a million posts in the public sector were forecast to have to go. That is indeed what has happened, and we are saving £2 billion a year, with a civil service now smaller than at any time since the war. I also said three years ago that I was confident that job creation in the private sector would more than make up for the losses. That prediction created more controversy than almost anything else at the time, including with the Opposition. The shadow Chancellor called it “a complete fantasy”. Instead, every job lost in the public sector has been offset by three new jobs in the private sector. In the last year, five new jobs have been created for every job cut in the public sector. The central argument of those who fought against our plan is completely demolished by the ingenuity, enterprise and ambition of Britain’s businesses. I pay tribute to the hard-working people of this country who proved their pessimism wrong.

In this spending round, the Treasury will, as one would expect, lead by example. In 2015-16, our resource budget will be reduced by 10%. The Cabinet Office will also see its resource budget reduced by 10%. However, within that we will continue to fund support for social action, including the National Citizen Service. Ninety thousand places will be available for young adults in the citizen service next year, rising to 150,000 by 2016. It is a fantastic programme that teaches young people about their responsibilities as well as their rights, and we are expanding it.

Local government will have to make further savings too. My right hon. Friend the Communities and Local Government Secretary has set an example to all his colleagues by reducing the size of his Department by 60% and abolishing 12 quangos. He is a model of lean government, and has agreed to a further 10% saving in his resource budget. But we are committing to more than £3 billion capital investment in affordable housing and we will extend the troubled families programme to reach 400,000 more vulnerable families who need extra support. We are proving that it is possible to save money and create more progressive government. That is the right priority.

Here is another of the Government’s priorities: helping families with the cost of living. Because we know that times are tough, we have helped to keep mortgage rates low, increased the personal allowance, cut fuel duty and frozen council tax. That council tax freeze is due to come to an end next April. I do not want that to happen, so I can tell the House today that because of the savings we have made we can help families with their bills. We will fund councils to freeze council tax for the next two years. That is nearly £100 off the average council tax bill for families, and brings savings on these bills for families to £600 over this Parliament. That demonstrates our commitment to all those who want to work hard and get on.

There is one more thing that we can do to help with the cost of living in one part of the country. For years, Members from the south-west of England have fought on behalf of their constituents who face exceptionally high water bills. Nothing was done until we came to office. Now we have cut those water bills by £50 per household every year until 2015. My hon. Friend the Member for Camborne and Redruth (George Eustice) and many others have campaigned to extend that rebate beyond 2015. I am happy to confirm today that we will do that. Taking money out of the cost of government and putting it in the pockets of families—that is what we mean by reform.

Local government has already taken difficult decisions to reduce staff numbers, share services and make savings. I pay tribute to Sir Merrick Cockell for all he has done in showing how this can be achieved. We were told by the scaremongers that savings in local government would decimate local services. Instead, public satisfaction with local council services has gone up under this Government. That is because, with our reforms, communities have more control over their own destiny. That is because we have devolved power and responsibility to manage budgets locally. That is because we have let councils benefit from the tax receipts that come when the local economy grows. Today, we give more freedom, including greater flexibility over assets, and we will drive greater integration of local emergency services. I thank my hon. Friend the Member for Bournemouth East (Mr Ellwood) for his fresh thinking in this area, which has helped to inform us.

We are also embarking on major reforms to the way we spend money locally through the creation of the single local growth fund that Lord Heseltine proposed. This will be £2 billion per year, which is at least £10 billion over the next Parliament. Local enterprise partnerships can bid for that sum, and the details will be set out tomorrow. Our philosophy is simple: trust people to make their own decisions and they will usually make better decisions. But in return for those freedoms, we have to ask local government for the kind of sacrifices central Government are making. The local government resource budget will be reduced by 10% in 2015-16, but when all the changes affecting local government that I will set out are taken into account, including local income and other central Government funding, local government spending reduces by approximately 2%.

I set out today the block grants to the devolved Administrations. Because we have prioritised health and schools in England, this feeds through the Barnett formula to require resource savings of about 2% in Scotland, Wales and Northern Ireland. The Scottish resource budget will be set at £25.7 billion, and Scotland will benefit from new capital borrowing powers of almost £300 million. Being part of the UK means that Scotland will see its capital spending power increase by almost 13% in real terms in 2015-16. It is rightly for the Scottish Parliament to decide how best to use it. That is devolution within a United Kingdom delivering for Scotland.

The Welsh resource budget will be £13.6 billion, and we will shortly publish our response to the Silk commission on further devolution of taxation and borrowing. When we do so, we will be able to say more about the impressive plans to improve the M4 in south Wales that my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) and others have been campaigning for. The Northern Ireland resource budget will be £9.6 billion. We have agreed to provide an additional £31 million in 2015 to help the Police Service of Northern Ireland tackle the threat posed by terrorism. Those police officers do an incredibly brave job on our behalf, and we salute them. Separately, we will make 10% savings to the Scotland, Wales and Northern Ireland Offices.

We believe that the cultural heritage of our nations is not just an economic asset, but has intrinsic value. When times are tough, they too must make a contribution to the savings this country requires. The Department for Culture Media and Sport will make savings of 7% in its resource budget. Elite sports will be protected and the funding of community sports, arts and museums will be reduced by just 5%, but because we recognise the value of our greatest museums, galleries and English Heritage, we are giving them much greater freedom from state control, which they have long called for, applying our reforming principles across the board and empowering those on the front line who know best—what the director of the British Museum called:

“good news in a tough economic climate”.

And while we are at it, we will make sure that the site of the battle of Waterloo is restored in time for the 200th anniversary to commemorate those who died there and to celebrate a great victory of coalition forces over a discredited former regime that impoverished millions.

We still have the finest armed forces in the world, and we intend to keep it that way. The first line of national defence is sound public finances and a balanced defence budget, and my right hon. Friend the Defence Secretary is helping to deliver both. He and his predecessor, my right hon. Friend the Member for North Somerset (Dr Fox), have filled the £38 billion black hole they inherited in the finances of the Ministry of Defence. We will continue to ensure we get maximum value for money from what will remain, which, at over 2% of our GDP, is one of the largest defence budgets in the world. The defence resource budget will be maintained in cash terms at £24 billion, while the equipment budget will be £14 billion and will grow by 1% in real terms thereafter. We will further reduce the civilian work force and their allowances; renegotiate more of the hopeless private finance initiative contracts signed in the last decade; and overhaul the way we buy equipment.

My right hon. Friend the Prime Minister has rightly been clear throughout, however, that he is not prepared to see a reduction in Britain’s military capabilities. This spending round not only protects those capabilities, but enhances them with the latest technologies. We will not cut the number of soldiers, sailors or airmen—we need them to defend our country—and we will give them the best kit to do that job: new aircraft carriers, submarines, stealth fighters, destroyers and state-of-the art armoured vehicles. We also make a major commitment to invest in cyber. It is the new frontier of defence and a priority for the Government.

We will look after families who have lost their loved ones and those injured protecting us long after the wars they fought in are over. We previously committed to fund the military covenant for five years, and today I commit to funding the armed forces covenant permanently. We will do that with the money we have collected from the LIBOR fines, so those who represented the very worst values will support those who represent the very best of British values. Our veterans will not be forgotten.

The intelligence services are on the front line too. Silently, and often heroically, these fellow citizens protect us and our way of life, and so we will protect them in return, with a 3.4% increase in their combined resource budget. The Foreign Office is the public face of our diplomacy, and my right hon. Friend the Member for Richmond (Yorks) (Mr Hague) is quite simply the best Foreign Secretary we have had in a generation. He, too, has demonstrated how we can make our taxpayer pound go further. While making savings in his budget, he has managed to expand our network of embassies in the emerging world and focus his diplomats on British commercial interests. There will be further savings in that budget of 8% in 2015, but he is still committing to strengthen our embassy network in high-growth markets, from Shanghai to Abuja.

The Foreign Office projects our values abroad, and the Home Office protects our values here in Britain.

[Chris Ruane (Vale of Clwyd) (Lab)]

Is she the best Home Secretary for a generation?

[Mr Osborne]

Police reform is a model of what we can achieve across Government. Police forces are more accountable to the public, with modern working practices, the latest equipment and democratic oversight, and all that on a smaller—

[Hon. Members]

Is she the best for a generation?

[Mr Osborne]

Yes, she is the best Home Secretary for a generation—and a hell of a lot better than the ones who went before.

What was the Opposition’s prediction? They said that crime would rise, and what has happened instead? Crime has fallen by more than 10%. Thanks to the hard work of police officers up and down this country, crime is at its lowest level for 30 years. What was their prediction about our borders? They said that because of cuts we would not be able to control immigration, and what has happened instead? Net immigration is down by more than one third.

This Home Secretary is demonstrating that responsible budgets and reform can deliver better services for the public. In 2015, she will work with a resource budget of £9.9 billion, which is a saving of 6%, but the police budget will be cut by less than that. There will be further savings in the central Department, police forces will be encouraged to share services and some visa fees will go up, but protecting Britain from the terrorist threat remains a top priority, so I can confirm that the police counter-terrorism budget will not be cut at all.

For the police to do their job, they need a criminal justice system that works a lot better. A case of common assault can take 240 days to pass through the courts and involves five separate sets of case papers generated on three different computer systems. In some prisons, the cost of keeping a prisoner is £40,000 a year, but in others, it is one third of that, while the cost of legal aid per head is double the European average. My right hon. Friend the Lord Chancellor is reforming all these things, and by doing so will make savings of 10% in his departmental budget—and he will do that while for the first time offering probation services for those who have served short sentences to help to end the revolving door of crime and reoffending.

That is an example of the reform we are bringing in across Government, and every step of the way, every penny saved, every programme reformed, every entitlement reduced, every difficult choice taken, has been opposed by vested interests and those who got Britain into this mess in the first place. We will not let up. I will not let that happen. The reform will continue.

Government spending does not alone create sustainable growth; enterprise does, and the job of the state is to provide the schools, science, transport links and reliable energy that enable business to grow. Britain was once the place where the future was invented, from the railway to the jet engine to the world wide web. We can be that country again, and today we set out how to get there. A huge amount of innovation and discovery still goes on, but successive Governments, of all colours, have put short-term pressures over long-term needs and refused to commit to capital spending plans that match the horizons of a modern economy. Today we change that. We commit now to £50 billion of capital investment in 2015. From roads to railways, bridges to broadband, science to schools, it will amount to more than £300 billion of capital spending guaranteed to the end of this decade.

Today, we raise our national game. That means that Britain will spend on average more as a percentage of its national income on capital investment in this decade, despite the fact that money is tight, than in the previous decade, when Government spending was being wasted in industrial quantities.

My right hon. Friend the Chief Secretary to the Treasury will tomorrow set out the next stage of our economic infrastructure plan, with specific plans for more than £100 billion of infrastructure projects. Here is what that will mean for the Departments. The Department for Transport will make a 9% saving in its day-to-day resource spending, bearing down on the running costs of Transport for London and on rail administration, but its capital budget will rise to £9.5 billion—the largest rise of any part of Government—and we will repeat that commitment for every year to 2020.

We are already massively expanding investment on major road schemes, but we will do more. We are announcing the largest programme of investment in our roads for half a century. We have already expanded our investment in the railways, but we will do more. We are committing to the largest investment in our railways since the Victorian age, and with the legislation before this House today, we should give the green light to HS2, which will provide a huge boost to the north of England and a transformation of the economic geography of this country.

Here in London, we are digging Crossrail, the largest urban infrastructure project in Europe, but we will do more. We are looking now at the case for Crossrail 2, linking London from north to south. We are going to give the Mayor almost £9 billion pounds of capital spending and additional financing power to the end of this decade.

[Ms Rosie Winterton (Doncaster Central) (Lab)]

Is he the best ever? Better than the Prime Minister?

[Mr Osborne]

Well, he’s a lot better than Ken Livingstone, that’s for sure.

Investing in our economic infrastructure also means investing in energy, so we will provide the certainty that investors are crying out for in western countries. This country is already spending more on renewables than ever before. Now we will provide future strike prices for low carbon. We are restarting our civil nuclear programme when other countries are unable to continue theirs, and now we are providing guarantees for new nuclear. Our exploitation of gas in the North sea is already second to none. Now we are making the tax and planning changes that will put Britain at the forefront of exploiting shale gas. We will provide our country with the energy of the future at a price that we can afford. Taken together, this should support over £100 billion of private sector investment in energy.

The Department of Energy and Climate Change will do this while reducing its resource budget by 8%. The Department for Environment, Food and Rural Affairs will see a 10% reduction, but we will set out plans for a major commitment to new flood defences for the rest of this decade. Again, we are prioritising long-term capital through day-to-day cost savings, which is exactly the tough choice that Britain should be making.

It is not enough to have roads, power stations and flood defences. That is just the physical infrastructure we need to compete in the 21st century. We need the intellectual capital, too. This country needs to invent, pioneer and export around the world. That means backing the Department for Business, Innovation and Skills, which helps us to do that. And it means taking tough decisions about what we should support. My right hon. Friend the Secretary of State for Business, Innovation and Skills has agreed to a reduction of 6% in the cost of the Department. That means that we are making savings to student maintenance, keeping grants but not increasing them, and the cost of the central Department will also be cut further. That means that, within the reduced budget, we can put more money into apprenticeships and continue with the dramatic increase in support that we have provided to exporters through UK Trade & Investment.

We are not going to shift medical training and research out of that Department, because they are working well where they are. And in that Department too, we can shift from day-to-day spending to a huge 9% increase in capital investment. That includes a huge investment in science. Scientific discovery is first and foremost an expression of the relentless human search to know more about our world, but it is also an enormous strength for a modern economy. From synthetic biology to graphene, Britain is very good at it and we are going to keep it that way. Today, I am committing to maintaining the resource budget for science at £4.6 billion, to increasing the capital budget for science in real terms to £1.1 billion, and to maintaining that real increase to the end of this decade. Investment in science is an investment in our future. So yes, from the next generation of jet engines to cutting-edge supercomputers, we say: keep inventing, keep delivering; this country will back you all the way.

We have infrastructure and we have science, but we still need an educated work force to make it happen. Because of our ongoing reforms to our universities, they are now better funded than before—[Hon. Members: “What?”] Well, Mr Speaker, people will remember that the reforms to higher education were bitterly contested in the House. We remember the scaremongering about fees, and the claims that they would destroy social mobility and put off students from poorer communities applying. And what has happened since? We now have the highest ever proportion of students from the most deprived neighbourhoods applying to universities. We should all welcome that.

There is no greater long-term investment a country can make than in the education and skills of its children. Because of the tough decisions that we have taken elsewhere, we have been able to invest in education and accelerate school reform. When we took office, our country’s education system was falling behind other parts of the world. Now, thanks to the brilliant programme of reform by my right hon. Friend the Secretary of State for Education and the Minister for Schools, my right hon. Friend the Member for Yeovil (Mr Laws), we are once again leading the way.

We have applied our reform principles in education too, freeing schools and teachers to concentrate on teaching and turning the majority of secondary schools into academies. In this spending round, that momentum of reform will grow. The Department for Education’s overall budget will increase to £53 billion and schools spending will be protected in real terms, fulfilling the pledge we made at the beginning of this Parliament, for all of this Parliament. We will transfer power and money from town halls and central bureaucracy to schools, so that more of the money for education is spent on education. So, while grants to councils and spending on central agencies are reduced, the cash going to schools will go up.

I can announce today that schools spending will be allocated in a fairer way than ever before. School funding across the country is not equally distributed; it is distributed on a historical basis with no logical reason. The result is that some schools get much more than others in the same circumstances. That is unfair and we are going to put it right. Many MPs on both sides of the House have campaigned for that. My hon. Friend the Member for Worcester (Mr Walker) has been a particular champion in this Parliament. Now, the lowest-funded local authorities in this country will at last receive an increase in their per-pupil funding as we introduce a national funding formula to ensure that no child in any part of our country is discriminated against. We will consult on all the details so that we get this historic reform right. The pupil premium that we have introduced also ensures that we are fair to children from low income backgrounds. It will be protected in real terms, so that every poor child will have more cash spent on their future than ever before. The capital budget will be set at £4.6 billion in 2015-16, with over £21 billion of investment over the next Parliament.

We will also tackle the backlog of maintenance in existing schools and we will invest in new school places. We will fund 20 new studio schools as well as 20 new university technical colleges, as they are outstanding new vocational institutions. Free schools are giving parents the opportunity to aspire to a better education for their children. The Opposition have said that they want no more of them, but we will not allow such an attack on aspiration to happen. Instead, we must accelerate the programme and bring more hope to more children. That is why I can announce that we will fund an unprecedented increase in the number of free schools. We will provide for 180 great new free schools in 2015-16.

The schools budget will be protected, there will be fairer funding across the nation, the pupil premium will be extended to more students than ever before and there will be a transformation in the free school programme. We will not make our children pay for the mistakes of the past. We will give them every chance for the future, because that is the single best investment we can make.

Our education settlement is also consistent with the third and final principle of this spending round—fairness. It is not possible to reduce a deficit of this size without asking all sections of the population to play their part, but those with the broadest shoulders should bear the greatest burden. The Treasury’s distributional analysis shows that the top fifth of the population lose the most after this spending round, and the independent Institute for Fiscal Studies is unequivocal that the richest 10% have paid the most. In every year of this Parliament, the rich will pay a greater proportion of income tax revenues than they did in any one of 13 years under the last Labour Government.

When it comes to Her Majesty’s Revenue and Customs, despite the fact that this Department will see a 5% reduction in its resource budget, we are committed to extra resources to tackle tax evasion. The result is that we expect to raise over £1 billion more in tax revenues from those who try and avoid paying their fair share.

Fairness also means refusing to balance the budget on the backs of the world’s poorest. I know that not everyone believes we should fulfil our commitment to spend 0.7% of our national income on development—but I do. I am proud to support a Government who are the first in our history to meet our pledge and meet it not only this year, but next year and the year after that. Of course, overseas development is about more than just the Department for International Development budget, and we comply with internationally policed rules. The DFID budget is, however, the lion’s share, and it will be set at £11.1 billion in 2015-16. Even in these tough times, the decisions we make mean we keep to our commitments.

That includes our commitment to the national health service—an institution that is the very embodiment of fairness in our society. The NHS is much more than the Government’s priority; it is the people’s priority. When we came to office, the health budget was £96 billion; in 2015-16, it will be £110 billion—and capital spending will rise to £4.7 billion. New medical treatments and an ageing population mean that the demand for NHS services is rising, so we have not spared in also demanding reform and value for money in this service. This will not insulate the health service from tough choices; there are already 7,000 fewer managers, and the NHS will continue to make efficiency savings. Those savings will, however, enable new investment in mental health and funding for new treatments for cancers such as prostate and breast cancer. Let me respond directly to the breast cancer research campaign in which so many have taken part. We will continue to back the charity research support fund and look into making it easier for these organisations to benefit from gift aid.

Many older people do not just use the NHS; they also use the social care system. If we are honest, they often fall between the cracks of the two systems, being pushed from pillar to post, not getting the care they should. None of us here would want that for our parents or grandparents, and in a compassionate society, no one should endure it. It is a failure that also costs us billions of pounds: Britain can do better.

We said in the 2010 spending review that the NHS would make available around £1 billion a year to support the health needs of people in social care. It worked, and saved hundreds of millions in the process. Last year, these improvements meant almost 50,000 fewer bed days were lost to the NHS. So today, I can announce that I will bring together a significant chunk of the health and social care budgets. I want to make sure that everyone gets a properly joined-up service where they will not have to worry about whether a service is coming from the NHS or the local council.

Let us stop the tragedy of people being dropped in A and E on a Friday night to spend the weekend in hospital because we cannot look after them properly in social care. By 2015-16, over £3 billion will be spent on services that are commissioned jointly and seamlessly by the local NHS and local councils working together. It is a huge and historic commitment of resources to social care, tied to real reform on the ground, to help end the scandal of older people trapped in hospitals because they cannot get a social care bed. This will help relieve pressures on A and E, help local government to deliver on its obligations and will save the NHS at least £1 billion. This is integrated health and social care—no longer a vague aspiration, but a concrete reality transforming the way we look after people who need our care most.

So these are the three principles that guide the spending round: reform, growth and fairness. Nowhere could these principles be more clearly applied than in our approach to welfare. Two groups of people need to be satisfied with our welfare system: those who need it who are old, vulnerable, disabled or have lost their job, whom we as a compassionate society want to support. Then there is a second group: the people who pay for this welfare system who go out to work, pay their taxes and expect it to be fair on them, too.

So we have taken huge steps to reform welfare: changing working age benefits with universal credit so that work always pays; removing child benefit from the better off; capping benefits so that no family out of work gets more than the average family gets in work. And we have been making sure that benefit payments do not rise faster than wages. The steps we have taken will save £18 billion a year—and every single one of them was opposed by the welfare party on the Opposition Benches.

Now we propose to do three further welfare reforms. First, as I said in the Budget, we are going to introduce a new welfare cap to control the overall costs of the benefits bill. We have already capped the benefits of individuals, and now we cap the system as a whole. Under the system we inherited, welfare spending was put into a category called annually managed expenditure, but the problem was that it was not managed at all. The cost of welfare went up by a staggering 50%—even before the crash. Our welfare cap will stop that happening again. The cap will be set each year at the Budget for four years. It will apply from April 2015 and will reflect forecast inflation, but it will be set in cash terms. In future, when a Government look to breach the cap because they are failing to control welfare, the Office for Budget Responsibility will issue a public warning. The Government will then be forced to take action to cut welfare costs or publicly to breach the cap and explain it to Parliament.

We will exclude a small number of the most cyclical benefits that directly rise and fall with the unemployment rate to preserve the automatic stabilisers: housing benefit, tax credits, disability benefits and pensioner benefits will all be included—but the state pension will not. I have had representations that we should include the basic state pension in the welfare cap. That would mean that a future Government could offset a rise in working age benefits by cutting the pensions of older people. That penalises those who have worked hard all their lives. Cutting pensions to pay for working age benefits is a choice this Government are certainly not prepared to make. It is unfair; we will not do it and we reject those representations completely.

The new welfare cap is proof that Britain is serious about living within its means: controlling spending, protecting the taxpayer and being fundamentally fair. Today we are introducing a limit on the nation’s credit card. The principles enshrined in the cap apply to our second reform today. We will act to ensure that we stop the cost of paying the winter fuel payments made to those who live abroad rising in a way that no one ever intended. EU law now says that people living in the European economic area can claim winter fuel payments from us, even if they did not get them before they left the UK. Paying out even more money to people from all nationalities who might have worked in this country years ago, but no longer live here is not a fair use of the nation’s cash. So from the autumn of 2015, we will link the winter fuel payment to a temperature test; people in hot countries will no longer get it. It is, after all, a payment for winter fuel.

The third welfare reform I announce today is about making sure we do everything to help people get into work. My right hon. Friend the Secretary of State for Work and Pensions has changed the national debate about welfare, and has comprehensively won the argument. He has committed himself to finding a further 9.5% of savings in his Department’s running costs. That will require a difficult drive for efficiency, and a hard-headed assessment of underperforming programmes.

However, welfare reform is about much more than saving money, vital though that is. It is about reducing dependency and changing people’s lives for the better. I am determined to go further to reduce worklessness with all its social consequences. Where is the fairness in condemning people to a life on benefits because the system will not help them to get back into work?

Today we are introducing Upfront Work Search. We are going to make sure that people turn up with a CV, register for online job search, and start looking for work. Only then will they receive their benefits. Thanks to this Government, lone parents who are out of work can now receive free child care for all their three and four-year-olds, so it is reasonable to ask that they start regularly attending jobcentres and preparing to return to work.

We are announcing further changes today. Half all jobseekers need more help with looking for work, so we will require them to go to the jobcentre every week rather than once a fortnight. We will give people more time with jobcentre advisers, and proper progress reviews every three months. We will also introduce a new seven-day wait before people can claim their benefits. Those first few days should be spent looking for work, not looking to sign on. We are doing those things because we know that they help people to stay off benefits, and help those who are on benefits to get back into work faster.

Here is a further change. From now on, if claimants do not speak English, they will have to attend language courses until they do. That is a reasonable requirement in this country. It will help people to find work, but if they are not prepared to learn English, their benefits will be cut.

As a whole, this new contract with people on benefits will save more than £350 million a year, and all that money will enable us to afford extra support to help people to get into work. Help to work, incentives to work, and an expectation that people should do everything that they can to find work: that is fair to people who are out of work, and it is fair to those in work who pay for them. Together, these reforms bring the total additional welfare savings in 2015 up to £4 billion.

Step by step, this reforming Government are making sure that Britain lives within its means. The decisions that we make today are not easy, and these are difficult times; but with this statement, we make more progress towards an economy that prospers, a state that we can afford, a deficit coming down, and a Britain on the rise. I commend our economic plan to the country.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

The Chancellor spoke for more than 50 minutes, but not once did he mention the real reason for today’s spending review: his comprehensive failure on living standards, growth and the deficit. We have seen prices rising faster than wages, families worse off, long-term unemployment up, welfare spending soaring, a flatlining economy, and the slowest recovery for more than 100 years. As a result of that failure, for all the Budget boasts, borrowing last year was not down but up. The Chancellor has not balanced the books, as he promised to do, and in 2015 we will see a deficit of £96 billion. There has been more borrowing to pay for the Chancellor’s economic failure, which is why he has been forced to come to the House today to make more cuts in our public services.

Does the Chancellor recall what he said to the House two years ago? He said:

“we have already asked the British people for what is needed, and…we do not need to ask for more.”—[Official Report, 23 March 2011; Vol. 525, c. 951.]

We do not need to ask for more! Is not the Chancellor’s economic failure the reason why he is back here today asking for more? More cuts in the police, more cuts in our defence budgets, more cuts in our local services: this out-of-touch Chancellor has failed on living standards, growth and the deficit, and families and businesses are paying the price for his failure.

Of course, it was not supposed to turn out like this. Does the Chancellor remember what he told the House three years ago, in his first Budget and spending review? He said that the economy would grow by 6%, but it has grown by just 1%. He pledged to get the banks lending, but bank lending is down month on month on month. He made the number one test of his economic credibility keeping the triple A credit rating, but on his watch we have been downgraded not once but twice. He promised that living standards would rise, but they are falling year on year on year. He said “We’re all in this together”, but then he gave a huge tax cut to millionaires. He promised to balance the books, and that promise is in tatters.

We see failed tests and broken promises. The Chancellor’s friends call him George, the US President calls him Jeffrey, but to everyone else he is just Bungle—and I see that even Zippy on the Front Bench cannot stop smiling. Calm down, Zippy, calm down.

Did we get an admission from the Chancellor that his plan has not worked, and that Britain needs to change course? Did we get the plan B for growth and jobs that we and the International Monetary Fund have called for? It does not have to be this way. Surely, rather than planning for cuts in 2015, two years ahead, the Chancellor should be taking bold action now to boost growth this year and next. Investment would get our economy growing and bring in the additional tax revenues that would mean that our police, armed forces and public services would not face such deep cuts in 2015. Why did the Chancellor not listen to the IMF, and provide £10 billion in infrastructure investment this year? Given that house building is at its lowest level since the 1920s, why is he not building 400,000 more affordable homes this year and next? If the Chancellor continues with his failing economic plan, it will be for the next Labour Government to turn the economy around and make the tough decisions that will get the deficit down in a fair way.

I have to say to the Chancellor that there is no point in boasting about infrastructure investment in five or seven years’ time; we need action now. I must also say to him that he ought to brief the Prime Minister better for Prime Minister’s questions, because three years after the infrastructure plan was launched, just seven of the 576 projects that were announced have been completed. More than 80% have not even been started, just one school has been provided, and in the first three months of this year, infrastructure investment fell by 50%. On infrastructure, we need bold action now, not just more empty promises for the future.

As for the idea that this spending review will strengthen our economy for the long term, let me ask the Chancellor some questions. Where is the proper British investment bank that business wants? Where is the 2030 decarbonisation target that the energy companies say that they need if they are to be able to invest for the future? Where is the backstop power to break up the banks if there is no reform, which the Parliamentary Commission on Banking Standards called for? And whatever happened to the Heseltine plan’s much-heralded £49 billion single pot growth fund for the regions? A mere £2 billion is pathetic.

Is this not the truth? Instead of action to boost growth and long-term investment, all we got today was more of the same from a failing Chancellor, and we got more of the same on social security and welfare spending too.

We have had plenty of tough talk and divisive rhetoric from the Chancellor and the Prime Minister, but on their watch the benefits bill is soaring. Social security spending is up £21 billion compared with their plans. We have called for a cap on social security, and we fully support the triple lock on the pension—something not even mentioned in the Chancellor’s statement—but the fact is that in 2010 the Chancellor tried to set a cap on social security spending and he has overspent his cap by £21 billion.

If the Chancellor really wants to get social security bills down, why not get young people and the unemployed back to work with a compulsory jobs guarantee paid for by a tax on bank bonuses? Why not get our housing benefit bill down by tackling high rents and the shortage of affordable homes? Why not stop paying the winter fuel allowance to the richest 5% of pensioners? And why not make work pay with a 10p tax band paid for by a mansion tax, instead of huge tax cuts for millionaires?

The Chancellor is making the wrong choices on growth and social security spending, and he is making the wrong choices on departmental spending as well. Let me ask him: when thousands of front-line police officers are being cut, why is he spending more on police commissioners than the old police authorities? Why is he wasting £3 billion on a reckless reorganisation of the NHS that the public do not support? Why is he funding new free schools in areas with enough school places, while parents in other areas cannot get their children into a local school?

We will study the Chancellor’s departmental spending plans for 2015-16. There is a lot of detail that he did not provide for the House. We look forward to seeing whether he will confirm the continuation of free national museum entry—maybe he can tell us in his response—but I have to say to the Chancellor that the country needs to know the detail, so let me ask him: will this spending review mean fewer police officers in 2015-16, on top of the 15,000 we will lose in this Parliament? Will it mean fewer nurses in 2015, on top of the 4,000 we have lost so far? Will it mean fewer Sure Start children’s centres, on top of the 500 that have already closed? And will he continue to impose deeper cuts on local authorities in areas with the greatest need, when already in this Parliament the 10 most deprived local authorities are losing six times the spending per head of the 10 least deprived areas? People up and down the country want to know the answers to these questions, and they should be in no doubt that the scale of the extra cuts the Chancellor has announced today to our police, defence and local services are the direct result of his abject failure to get the economy to grow.

The Chancellor is failing on living standards; they are falling. He is failing on growth; it is flatlining. He is failing on the deficit, and all we got was more of the same: no plan to turn our economy around, no hope for the future, and Britain’s families and our public services are paying the price for this Chancellor’s failure.

[Mr Osborne]

One thing is for certain after that performance: the right hon. Gentleman is the worst shadow Chancellor for a generation, and we want to keep him right where he is. What is amazing is that he spoke for 11 minutes and never said Labour wants to borrow more. Did anyone hear that in his comments? That is his argument: he wants to borrow more. Why does he not have the courage to get up and make his economic argument at the Dispatch Box? He finds himself in a situation where the entire argument he has been advancing for the last three years has completely collapsed. Where was the reference to the temporary VAT cut? Abandoned. Where was the reference to the five-point plan? Abandoned. He complains about all the cuts; here is a very simple question. We shall spend £745 billion in 2015; what will he spend? Does he match those plans or not? Hands up on the Labour Benches from those who want to match our spending plans. On Saturday, the Labour leader—

[Mr Speaker]

Order. May I just say—[Interruption.] No help from the hon. Member for Colne Valley (Jason McCartney) is required; he would not have the foggiest idea where to start. Let me just say to the Chancellor of the Exchequer that there is a way in which these matters are handled, and it is not by the Minister responding to questions posing a series of questions. That is in breach of parliamentary protocol, it is not proper, and it must stop right away—and others, including at the very highest level, ought to take note of that for future weeks. Let’s be clear about it.

[Mr Osborne]

I will leave it to the country to ask these questions. I make this point. In this spending plan I have set out total managed expenditure of £745 billion, and it is up to all Members of this House to decide whether they support that. We do not know the position of the Opposition, because on Saturday the Labour leader said there would be no more borrowing, but on Sunday the shadow Chancellor said “yes, of course” there would be, so we will see what the position of the Opposition is on this.

The shadow Chancellor mentions what has been said in this House before. Well, let us be clear about what he said in this House before, and how we have responded to it in this spending plan. On 6 June 2011 he said there would be a return to mass unemployment. We have set out welfare plans that help people get back into work. Does he support those or not? That is the question the public will ask of him. He said in October 2010 that we were taking a huge risk with crime. Crime is down 10% or more. He said in July that year that the university reforms would shut out those from disadvantaged backgrounds from university, but actually a record proportion of pupils from disadvantaged backgrounds applied to go to university. He said, in his own words, that the cuts to the border agency would mean we would be unable to enforce our immigration policy. That was wrong, too. Every prediction he has made, including the prediction that there would be no more boom and bust, has proved to be completely wrong, so why would anyone believe a word he has got to say about this?

The simple point is this: we have set out our plans—we have set out our economic strategy, we have set out our spending plans—and those who disagree with them should advance an alternative or retreat from the battlefield, because the shadow Chancellor finds himself in no man’s land. He has abandoned his economic argument but stuck with a disastrous economic policy of borrowing more, and in the end, if we want to know why, we only need to hear what he said this month:

“Do I think the last Labour government was profligate, spent too much, had too much national debt? No, I don’t think there’s any evidence for that.”

All people want Labour to say is, “We’re sorry, we got it wrong, we borrowed too much and we spent too much, and we won’t do it again.”

To answer the specific question that the shadow Chancellor asked me, yes we will have free museum charges—so that people can go to our museums and see the antiquated economic policy advanced by the Opposition, which brought this country to its knees and gave us the worst economic crisis for a generation, and they can learn how this Government cleared up that mess.

These reductions and the control of public expenditure are absolutely essential. That will bolster the credibility of fiscal policy in the markets and it creates room for the private sector to lead the recovery and create the jobs we need, particularly in small businesses in our constituencies, which are desperately trying to find the funding to expand.

[Mr Andrew Tyrie (Chichester) (Con)]

Behind all the noise, most Members actually do agree that both the deficit and public spending are much too high and have to come down, and we should be under no illusions among ourselves just how tough and remorseless a task that is. Those reductions and that control of public expenditure are absolutely essential. They will bolster the credibility of fiscal policy in the markets and create room for the private sector to lead the recovery and create the jobs we need, particularly in small businesses in our constituencies, some of which are desperately trying to find the funding to expand. Sustaining public expenditure control over this period, and now being able to set out plans for the years ahead, is a great achievement by the Chancellor, the Chief Secretary to the Treasury and the coalition.

I want to draw attention to and ask a question about a particular proposal. The cap on nominal welfare spending will need careful scrutiny; it may well be an essential measure to give teeth to controlling annually managed expenditure, which frankly has not been well managed and is threatening to get out of control. Will the Chancellor publish today all the necessary detail to enable Parliament and the Treasury Committee to examine this extremely important proposal?

[Mr Osborne]

I thank my hon. Friend for his support for the difficult steps we needed to take. Our trying to set out these spending plans further in advance, so that Departments have time to make the necessary adjustments, is a good innovation in fiscal policy. The certainty we now have for 2015 will, I think, mean better public policy.

We have set out some of the details of the welfare cap in my speech today, but in the document we publish, we have set its parameters, how it will be set in cash terms, the period over which it will be set and when it will be set—at the Budget. However, it is absolutely my intention to listen to the Treasury Committee, which I hope will take an interest in this issue, and to examine best practice and make sure we get the final details absolutely right. If we want to change the Office for Budget Responsibility charter, we will have to legislate, but that is something we need to examine. We absolutely should work on the details, but the principles and the principal components of the cap have been established.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I was interested in the Chancellor’s claim to have rescued the economy. I think I am right in saying that in 2010, the economy was actually growing, whereas unfortunately, in 2011 it stopped growing. That is why he is borrowing more than he intended and why his target to reduce national debt has been moved well into the next Parliament.

On the new growth items the Chancellor announced today, particularly those relating to transport, how much of that is public money and how much is expected to be raised from the private sector? Can he also give us some idea of how much additional growth he expects to see in the economy as a result of the measures he has announced, most of which, I think I am right in saying, will not take effect until the next Parliament? Given the delay in delivery of these projects—a problem that has dogged successive Governments—it may be some considerable time before we actually see their economic benefit.

[Mr Osborne]

The right hon. Gentleman and I have, I hope, a cordial relationship, but I will just disagree on one point. The idea that he handed me a golden economic legacy and an easy set of books, and that somehow it was all fantastically booming after a 6% contraction in the economy, is something that will turn out, if I check his memoirs, not to have been the case.

To answer the right hon. Gentleman’s specific points, the transport money we set out is public investment; of course, there are opportunities to lever in additional private investment. He was gracious enough to acknowledge that all Governments have had the challenge of how to deliver infrastructure projects, given the planning system we have and so forth. We are reforming planning and will set out this week changes to infrastructure delivery in Whitehall to try to accelerate the delivery of projects—something that has bedevilled the British Government for decades, and we shall do our best to put it right.

[Mr John Redwood (Wokingham) (Con)]

I fully support the Chancellor’s wish to reduce the growth rate of public spending in cash terms; it is a very necessary thing to do to get the deficit under control as economic growth picks up, as I think it is now doing. On the welfare reforms, will he look at the idea that any non-British citizen coming to our country should have to work for a period and pay taxes before being eligible for any welfare benefits?

[Mr Osborne]

I am certainly prepared to look at any ideas that my right hon. Friend puts forward on welfare. Of course, one of our challenges—one of the debates in this country and in other European countries—concerns the eligibility for benefits of people who move here. In that regard, we are hemmed in by European law, but there may be opportunities within it to make some adjustments, and we are looking closely at those.

[Margaret Hodge (Barking) (Lab)]

The Chancellor said that one of the objectives of his statement today was to stimulate growth, and he announced £50 billion of investment in 2015-16. In 2009-10, this country spent £48.4 billion in cash terms. Will he now accept that that 2015-16 figure represents a real-terms cut in investment?

[Mr Osborne]

I inherited from the last Chancellor a plan greatly to reduce capital spending—to cut it by 50%. In the 2010 review, we increased it from the plans we inherited. We increased it in the years since, and now we are maintaining it in the years going forward and setting it out for the rest of the decade. So the big reduction in capital spending that the right hon. Lady refers to is one I guess she must have supported, because she was a Minister of that Government.

[Stephen Williams (Bristol West) (LD)]

We all know that if we try to live a £40,000 lifestyle on a £30,000 salary, it soon leads to misery unless corrective action is taken. That was the legacy, at a national level, that we were left by the last Government. Despite that tough backdrop, have not this coalition Government secured funding for the national health service and for schools, including more money for children on free school meals, and today announced a massive boost to infrastructure spending and scientific research in order to smooth the way to sustainable economic growth?

[Mr Osborne]

My hon. Friend is right, and in the end this is about choices. I say to all the Labour Members getting ready to ask questions that, given that the Labour leader says that he will take these resource plans as a starting point, if they complain about any cut, they have to suggest what else they would cut. We have made choices as a Government. We have committed to protecting the NHS, committed to schools, committed to the pupil premium—we have done these things because we want a fairer society, and we also believe that investing in infrastructure and growth enhances our country’s economic performance. Those are our choices: if people have an alternative plan, we have not heard of it.

[Mr Peter Hain (Neath) (Lab)]

Why does the Chancellor think he is so right, and Keynes wrong?

[Mr Osborne]

We have drawn on the best economic evidence that the recovery from a banking crisis of the severity that we went through is long and protracted, but we have to de-lever as an economy and try to fix our banking system. That is what I set out at the Mansion House. We also have to have a credible fiscal policy in order to allow monetary policy to be loose. I think that is the best economic approach.

[Mr Brian Binley (Northampton South) (Con)]

My grandmother taught me that there are only two things people can do when they are in serious financial difficulty: cut spending, and earn more. The Chancellor’s record on cutting spending has been commendable, but more needs to be done on earning more. What will he do to enhance productivity to help this country earn more?

[Mr Osborne]

My hon. Friend is absolutely right that Britain has got to earn its way in the world, and that is about increasing our earnings as well as dealing with our expenditure. In the Budget, we set out a number of tax changes, such as the new employment allowance, which I know he strongly supports and which will help small firms by wiping out the first £2,000 of national insurance, taking a third of those firms out of national insurance. We have made a series of other tax changes to promote investment, and where we had to make tough spending choices, I have chosen in this spending round to prioritise things that will help businesses to create jobs.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Is the Chancellor not aware that he has been in post for three years now, that he owns these policies and that their failure is his responsibility? All the empty rhetorical questions directed at the Opposition and the shadow Chancellor will not airbrush away the failings on growth, living standards and borrowings. Is it not time he faced up to that and changed the policies that have failed so far?

[Mr Osborne]

I tell you what has happened while this Government have been in office. First, borrowing has come down—[Interruption.] The shadow Chancellor says it has gone up, but the problem is that if this really is his maths, the country would be in very serious trouble if he ever got himself back into Downing street. We were borrowing £157 billion a year under Labour and now we are set to borrow £108 billion in the coming year—£118 billion if we remove the asset purchase facility transfer. So borrowing has come down.

Secondly, more than 1 million jobs have been created. Thirdly, we can look around the world and see that this country is seen to have got its act together and is making the big reforms we need to education, welfare and the like. That is why we are absolutely determined to win the global race and people see us as a country capable of winning that race.

[Andrea Leadsom (South Northamptonshire) (Con)]

I sincerely congratulate my right hon. Friend on his statement. Not that he needs any advice from me, but he should stick to his guns because he is on the right track. I find myself agreeing violently with my neighbour, my hon. Friend the Member for Northampton South (Mr Binley), that this is about earning. In particular, I congratulate the Chancellor on his policies on education and apprenticeships to get young people better educated and in work. May I bring to his attention the fact that I have just recruited a new apprentice for my parliamentary office from Magdalen college school in Brackley? Will he join me in urging all colleagues to look into the apprenticeship scheme and how it might help them in their work?

[Mr Osborne]

I thank my hon. Friend for her support and kind words. We are absolutely going to stick to this economic plan—that is what is taking Britain out of rescue into recovery. If we abandon that plan and if we listen to the advice of the Labour party—although the shadow Chancellor did not mention it in his statement, Labour’s plan is to borrow more—we would be back in intensive care. She is right also to highlight the success of apprenticeships, as there are over 1 million more of them. We are committing to the funding of apprenticeships in this programme. A significant part of my statement was also about school reform, and when people look at it they will see that it is one of the most important parts of the statement.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

As the Chancellor’s private sector infrastructure proposals will take years to gain traction, if they ever do, why does he not use public investment to kick-start the economy now, as the only effective means to do so quickly, without any increase in public borrowing? He could do that through a further tranche of quantitative easing, specifically targeted on industrial investment; by instructing the state-owned banks to lend to industry at the scale required; or, most obviously, given that he talks about fairness, by taxing the super-rich, who have made massive gains since the crash, in the last five years.

[Mr Osborne]

First, we are committing to public investment as well as seeking to secure private investment. The first of the right hon. Gentleman’s ideas is about printing money to spend it on things. That has been tried by a number of countries but it does not always have a happy ending. Secondly, he has this plan to take over full control of the banks and run the banking system as a nationalised banking system. I do not think that would be a sensible approach; it would make the problems in our banking system worse rather than better.

Thirdly, the right hon. Gentleman talks about taxes. I recall, as I was an MP on the Opposition Benches at the time, that he was a Minister when his Government had a 40% tax rate, whereas we have a 45% rate. I do not remember him getting up at this Dispatch Box and complaining all the time that his Government were not increasing taxes on the rich. I seem to remember his good friend Peter Mandelson saying that they were all

“intensely relaxed about people getting filthy rich”.

Under this Government—I hope the right hon. Gentleman would support this—the richest are paying a greater percentage of our tax than under his Government.

[Mr David Burrowes (Enfield, Southgate) (Con)]

My constituents will welcome a fair review of welfare, schools and health. Will the Chancellor take the opportunity to renew his and our party’s vow to recognise marriage in the tax system and ensure that it is implemented as soon as possible within this Parliament?

[Mr Osborne]

I can give my hon. Friend the absolutely clear commitment that we will bring forward the proposals to recognise marriage in the tax system—the proposals we set out in our manifesto that are provided for in the coalition agreement—in due course.

[Toby Perkins (Chesterfield) (Lab)]

The Chancellor has told us today that he is going to bring forward infrastructure spending, but of course we have heard it all before. We reflect on a record of complete failure on infrastructure spending, whereby the money he announces does not actually get delivered. Why should we have any more confidence that what we have heard today will be any more successful than what he has brought to us previously from that Dispatch Box?

[Mr Osborne]

Because the road schemes that we committed to at this Dispatch Box got their planning permission, or are getting it, and the construction is starting. Some of those road schemes have been completed. The same is true with the schools and all the other pieces of infrastructure. One of our big problems was the complete absence when we came into office of a bunch of plans that were ready to go and had planning permission. We have had to do all that. I am all for speeding up Whitehall and the planning process, but I seem to remember that the Labour party voted against the planning reforms. So when we try to make those changes, which the former Chancellor was good enough to acknowledge are needed because of all the problems that previous Governments have had, actually he has opposed them.

[Dr Julian Huppert (Cambridge) (LD)]

I was delighted to hear confirmation that the unfair schools funding formula will finally change. Schools in Cambridgeshire have been underfunded for decades and pupils there now get the least of pupils anywhere in the country—they get £600 less than the average. I am very grateful for this money, as all the pupils in Cambridgeshire and other counties will be. When will that extra money start to arrive in our schools, which so desperately need it?

[Mr Osborne]

The Education Secretary and the Minister for Schools, the right hon. Member for Yeovil (Mr Laws), will set out details of how the formula will work. It is certainly our intention to introduce it in this Parliament, but we shall consult on it. Obviously it is a complex reform, but we have set out the ambition and the principles today, and the Department for Education will now take it forward.

[Stewart Hosie (Dundee East) (SNP)]

The Budget previously told us that discretionary consolidation for 2015-16 would be £130 billion rising to £155 billion. The Chancellor announced another £11.5 billion today and the pace of the cuts will go on until 2018. That still represents stripping consumption out of the economy equivalent to 8% of GDP, so why does he think that will deliver growth? He has told us previously that the ratio of cuts to tax rises would be 4:1, and nothing today changes that. He is still planning to balance the books on the back of the poor.

On the funding for Departments and, in this case, for Scotland, we face another £40 million revenue cut, on top of the £103 million revenue cut announced in the Budget and the 6.5% cut in the last comprehensive spending review, combined with a 25% cut to capital in the last CSR. This plan A has failed. What makes the Chancellor think that making the same mistakes all over again will deliver a different result this time around?

[Mr Osborne]

First, all parts of the United Kingdom have to make savings, but because of the application of the Barnett formula the savings in Scotland are 2%. I am not saying that will be easy, but it is not as difficult as the tasks that some English Departments face. We are also providing more borrowing powers for the Scottish Parliament to make its own decisions. We believe that is the right approach—devolution, with Scotland not only having the benefit of being in the United Kingdom and able to make its own decisions about the investments it makes, but benefiting from the very low interest rates that our credible fiscal policy delivers for all parts of the Union. It is pretty clear that if Scotland were independent, borrowing would be more expensive for the Scottish people.

[Mr Brooks Newmark (Braintree) (Con)]

Most of my constituents care about two things: whether they have a job, and what level of interest they pay on the mortgage or their business. More than 1.3 million new jobs have been created in the private sector, over a quarter of a million new businesses have been created and we have record low interest on mortgages and on businesses. Does my right hon. Friend feel, like me, that that would be jeopardised if we followed the shadow Chancellor’s borrowing plans?

[Mr Osborne]

I fear that it would be jeopardised and this country would be back in intensive care. It is remarkable that the shadow Chancellor did not have the courage at that Dispatch Box to say that Labour would borrow more. Labour did say that for three years and now it has completely gone silent.

[Ed Balls]

What are you talking about?

[Mr Osborne]

What I am talking about is that the Labour leader said on Saturday that Labour would not borrow more and the shadow Chancellor said on Sunday that it would. Because there are two alternative Labour economic policies out there, I would quite like to know which one is which.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Bankers’ bonuses are going up 64% this year because bankers have moved their income from a 50p tax year to a 45p tax year. Will the Chancellor act to reverse that tax evasion, which he caused?

[Mr Osborne]

Bank bonuses are down 85% since the previous Government left office. We have curbed irresponsibility in our City, which was rife when the shadow Chancellor was City Minister. In all the years for which the hon. Gentleman was a Member of Parliament for Croydon and sat on the Government Benches, I do not remember him getting up and saying, “I want a higher top rate of tax, Gordon Brown”—sorry, I mean the right hon. Member for Fife. We did not hear that. The truth is that the tax rate for rich people is higher under this Government than it was when the hon. Gentleman represented the good people of Croydon.

[Mr Speaker]

It is good of the Chancellor to refer to the former Prime Minister by the title of his constituency, but it is an even better idea to get it right as Kirkcaldy and Cowdenbeath.

[Steve Baker (Wycombe) (Con)]

The Bank of England’s Andy Haldane recently told the Treasury Committee:

“Let’s be clear, we have intentionally blown the biggest government bond bubble in history.”

What contingency plans have the Government made to cope with that bond market bubble bursting?

[Mr Osborne]

First, let me say that I stand corrected, Mr Speaker, although I think that Kirkcaldy and Cowdenbeath is in the Kingdom of Fife. Yesterday we issued a 55-year bond so we are clearly able to borrow money for the long term. Our economic policy, the further stage of which we set out today, commands the confidence of the world.

[Helen Goodman (Bishop Auckland) (Lab)]

The Chancellor is presiding over a situation in which an extra 200,000 children will be living in poverty while at the same time cutting taxes for millionaires. Does he think the parents of those children will think that is fair?

[Mr Osborne]

Child poverty went up by 300,000 during the recession of the previous Government, and the hon. Lady was a Government MP at the time. We have taken a number of actions today, such as that on the pupil premium, to help the poorest kids, and there is also the troubled families initiative. That means 400 families helped by our plans. The distributional analysis, as I showed, shows that the richest quintile in our society are paying the most as a result of the collection of these measures. We are demonstrating that it is possible to have progressive policies while living with sane public finances.

[James Morris (Halesowen and Rowley Regis) (Con)]

In my constituency, 2,500 more people are in work than at the time of the general election. That employment growth is largely a result of Government investment in apprenticeships and skills. Does the Chancellor agree that we need to invest more in apprenticeships and skills and to give local areas more control over how they invest in skills?

[Mr Osborne]

I absolutely agree with my hon. Friend. It is good to hear that the businesses of the west midlands and Halesowen and Rowley Regis are taking the opportunity to grow, expand and take people on. We are committed to the apprenticeship programme and are also committing to more local involvement in how money is spent through the Heseltine local growth pot, which will be £10 billion over the rest of the decade. Through some of our apprenticeship reforms set out in the Richard review, we will give the businesses my hon. Friend represents much greater influence over the kinds of skills that are taught locally.

[Keith Vaz (Leicester East) (Lab)]

I welcome the protection of the counter-terrorism budget, although I do not think the Chancellor’s claim that the Home Secretary is the best in a generation would necessarily win the vote among the police service. The Home Office budget as a whole will be cut by 7% and earlier this year the UK Border Agency was abolished by the Prime Minister. How will we get the backlog of more than 250,000 cases down if the budget is to be cut and mandarins at the Home Office still receive bonuses of several millions of pounds?

[Mr Osborne]

The Home Office saving is 6.1%, but my right hon. Friend the Home Secretary has demonstrated that she can live with a tough budget—which is true of all Government Departments at the moment—while delivering real reforms and improving the service we get at the end of it. Crime has come down to a 30-year low and immigration has already come down by a third. If the House has to choose between public services that are completely unaffordable and bust the country and public services that do not deliver a good service, that is no choice at all. We are delivering good public services that the country can afford.

--- Later in debate ---

[Sir Bob Russell (Colchester) (LD)]

Previous defence cuts mean that our Army is heading towards being smaller than it was at the battle of Waterloo, so that is hardly a triumph. Will the Chancellor confirm that there is now no need, based on his statement, for any cuts to any Army bands and will he also make a statement on why the family housing lived in by our brave soldiers is not being modernised?

[Mr Osborne]

We did win the battle of Waterloo with that Army, so we were not doing that badly. We are trying to make the choice to have a modern, deployable Army, fully equipped with the latest technology. To address the hon. Gentleman’s specific points, no reduction is required to the uniformed services. I would assume that that would include military bands, but that is for the Defence Secretary to set out. On housing, the Defence Secretary has set out a multi-billion pound plan to improve the housing stock for our brave soldiers and their families.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

Half a million people in our country accessed emergency food aid in the past year. The main reason people give for having to go to a food bank is delays in receiving the support to which they are entitled, whether they are in or out of work. How does the Chancellor believe that that situation will improve as a result of the announcements he has made today?

[Mr Osborne]

Food bank use went up tenfold under the previous Labour Government. We have advertised the services of food banks, which are great local community projects, through the jobcentres. I know that I am not allowed to ask questions, so let me pose a rhetorical question. Labour Members complain about the use of food banks, but can they explain why their use went up tenfold under the previous Government?

[Sarah Newton (Truro and Falmouth) (Con)]

I greatly welcome the step change in joining health and care services around people who need care. That is most welcome, as is the extra £3 billion spending to allow that vital integration. Will my right hon. Friend let the House know when the details of this vital reform will be published, so that we can all plan ahead?

[Mr Osborne]

I know that my hon. Friend has been a campaigner on social care issues. This is probably one of the most transformative announcements in the statement. The Health Secretary and the Local Government Secretary will set out shortly how it will work, but it will involve the local commissioning of social care services jointly by the NHS and local government to try to end the divide between the two services that people fall into. I am sure that my hon. Friend’s expertise will be drawn on, because she knows a lot about the subject.

[Mark Durkan (Foyle) (SDLP)]

The Chancellor outlined a new annually managed expenditure regime. Will he colour that in a little, particularly as regards Northern Ireland? Does he intend Northern Ireland to have its own separate welfare cap? How is it to be fixed? Will it take account of the higher rates of disability and long-term conditions in Northern Ireland or will the cap be used to try to taper Northern Ireland’s higher spending on those benefits?

[Mr Osborne]

The welfare cap will be for the United Kingdom, as we have a UK welfare system. It certainly will not be used to target Northern Ireland in particular. We want to ensure that more people in Northern Ireland have the opportunity to work and to get off benefits and although the subject has not featured in these questions, some of the changes we have announced to the jobcentre regime will help in this regard. We will ensure that they are suitably applied in Northern Ireland.

[Robert Halfon (Harlow) (Con)]

With the increased investment in nursery education, the pupil premium, apprenticeships, NHS social care and pensions, is this not a Government who help people from cradle to grave rather than saddling future generations with debt?

[Mr Osborne]

My hon. Friend makes an excellent point. We are doing everything we can to help people get a job, get on in life and aspire to better things, whether that means helping the poorest pupils in schools through the pupil premium, helping troubled families rather than abandoning them, or ensuring that our elderly get help from our social care system. Across someone’s life, we are stepping in to help rather than, as my hon. Friend points out, burdening the next generation with debt that this generation does not have the courage to tackle.

[Several hon. Members]

rose—

[Julie Hilling (Bolton West) (Lab)]

With 300,000 more children in absolute poverty, how many more will be in poverty by 2015?

[Mr Osborne]

Child poverty projections are made independently, but I say to the hon. Lady that we are doing everything we can to give children from poorer backgrounds the very best start in life, with measures such as the pupil premium.

[Mr Speaker]

Following the example of the Hilling handbook, I call Mr Andrew Selous.

[Andrew Selous (South West Bedfordshire) (Con)]

Will the Chancellor confirm that there will be a cap on benefits and not on the state pension in future?

[Mr Osborne]

Yes, absolutely. We received representations to include the state pension. We are not going to do so, but of course that will ultimately be decided at a general election.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

Given the 5% cut in the grant to museums and the increase in operational freedoms the Chancellor has announced, when does he expect charges to be introduced and how much does he think the average cost will be?

--- Later in debate ---

[Mr Osborne]

There will be no museum charges; free entry will remain. What we are doing in the museums sector is introducing radical new freedoms, which have been welcomed across the sector. I think that is the right reform, which is to give more freedom to the front line.

[Charlie Elphicke (Dover) (Con)]

As so little has been done about problems of tax avoidance over the past decade, can the Chancellor confirm that HMRC will have the resources and the cultural enthusiasm it needs to tackle tax avoidance? Does he agree—

[Mr Speaker]

Order. One question is enough.

[Mr Osborne]

The short answer is yes, and the Exchequer Secretary is doing an excellent job in changing that culture, with the Department.

[Chris Williamson (Derby North) (Lab)]

The Chancellor talked about rail investment in his statement. How many jobs is he creating in Dusseldorf, now that his Government have finalised their plans to spend £1.6 billion building the Thameslink trains in Germany, rather than in Derby? Is that a sensible use of taxpayers’ money?

[Mr Osborne]

Well, we were operating under the procurement rules of the previous Government.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

May I welcome my right hon. Friend’s announcement of an increase in transport capital and his indication that it will be invested in our rail network? The boost in capacity and services will be welcomed by rail travellers.

[Mr Osborne]

I am grateful for that welcome.

[Roberta Blackman-Woods (City of Durham) (Lab)]

The Chancellor knows that the north-east is already suffering disproportionately from his Government’s cuts, so can he tell the House what percentage of infrastructure spending will come to the north-east, and by when?

[Mr Osborne]

My right hon. Friend the Chief Secretary will set out the regional breakdown tomorrow.

[Dan Rogerson (North Cornwall) (LD)]

In his continuing discussions with the Department for Communities and Local Government, the Department of Health and the Home Office, will the Chancellor urge them to follow the example of my right hon. Friend the Minister for Schools in ensuring that money is spent fairly across the whole country?

[Mr Osborne]

Yes.

[Barry Gardiner (Brent North) (Lab)]

Because 67% of the Department of Energy and Climate Change’s budget is ring-fenced for the Nuclear Decommissioning Authority, the Chancellor’s 8% cut actually equates to a 35% cut when the Department has to deliver an infrastructure plan which, at £200 billion, is the largest this country has ever seen. How is it going to be able to do that?

[Mr Osborne]

The hon. Gentleman makes a good point about infrastructure capacity in Whitehall, and we will set out changes to infrastructure delivery tomorrow. The Department of Energy and Climate Change is part of that. Not only is the Energy Secretary on the case, but the new permanent secretary, Stephen Lovegrove, is too, and they are confident that they can deliver this within the budget.

[Mary Macleod (Brentford and Isleworth) (Con)]

There is a record number of apprenticeships in my constituency. Will my right hon. Friend confirm that the new announcement on apprenticeships means cross-sector and cross-industry support, as well as an increase in the number of girls going into science and engineering?

[Mr Osborne]

It is certainly our intention to increase the number of girls going into science and engineering and, indeed, to increase the number of people doing science and engineering subjects, both as schoolchildren and young adults. Our support for skills will help to deliver that.

[Sammy Wilson (East Antrim) (DUP)]

Some 10% of the capital funding for Northern Ireland will be in the form of financial transactions money, which requires the identification of private sector loan or equity investment-type arrangements. Can the Chancellor assure us that, with local Administrations, he will look for the greatest possible flexibility in the choice of those and in the timing of that spend?

[Mr Osborne]

I am happy to look at both the flexibility and the timing, and to make sure that my Department works closely with the devolved Administration in Belfast.

[Stephen Mosley (City of Chester) (Con)]

Will the Chancellor do his utmost to ensure that all local authorities take advantage of the council tax freeze, which he has generously extended today?

[Mr Osborne]

I hope that all local authorities take it up, but ultimately that is a matter for them—that is local democracy.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

From 2006, the Conservative and Liberal Democrats who used to run Newcastle borough council spent all of our £50 million reserves. In dictating a further indiscriminate 10% cut across the board to local government, how carefully has the Chancellor considered its impact, council by council, on their ability to provide decent basic public services and to give discretionary support to valued community groups and organisations?

[Mr Osborne]

We are giving local councils more freedom, including some more flexibility in the use of assets, particularly where they want to spend to save. The broader point is that if all the changes in local government and social care I announced are taken into account, the change for local government is more like minus 2%—still difficult, but I think that good local councils can continue to deliver excellent local services.

[George Eustice (Camborne and Redruth) (Con)]

I welcome the commitment the Chancellor made today to renew the water bill rebate for South West Water customers, which has been a vital respite for some 700,000 households in the west country. Does he agree with me that it would be wrong of any future Government to reverse that commitment for this spending review period?

[Mr Osborne]

I commend my hon. Friend for the campaign he has run. He has represented not only the people of his constituency but people across the south-west of England. Water bills are abnormally high because of the money that needs to be spent on cleaning up beaches and the like, and we have stepped in to help. It is this Government who have done that, after years of campaigns, and we have made the commitment to extend it. As for whether a Labour Government would remove it—well, they never introduced it when they were in office, so I suspect they would.

[Mr Clive Betts (Sheffield South East) (Lab)]

Does the Chancellor accept that, since the beginning of this Parliament, the cut in central Government grant to local authorities has been twice as great as the cut in funding for central Government Departments? With that in mind, will he take seriously the comments of the chair of the Conservative party that local councils can manage the cuts announced today without any reduction in front-line services?

[Mr Osborne]

I think good local councils can manage the ask we are making of them. Is the hon. Gentleman complaining? The Labour party has not made it clear whether or not it supports this total mandatory expenditure, so the Opposition cannot really complain about individual cuts unless they tell us whether they would make other cuts, and so far I have not heard of any.

[David Rutley (Macclesfield) (Con)]

Is not the main message from today’s statement that more can be done for less? Do we not need to move forward on that because of the mess left by Labour?

[Mr Osborne]

My hon. Friend is right: one of the central principles is that we can deliver more for less. Ultimately, we should not have to choose between public services we can afford and public services that deliver for people. We need both.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Is it true that, according to figures on page 11 of the spending review document, the Chancellor is cutting capital infrastructure spending by 1.7% in 2015-16 compared with 2014-15?

[Mr Osborne]

We are maintaining capital investment at £50 billion.

[Justin Tomlinson (North Swindon) (Con)]

The decision to introduce a fairer national education funding formula is vital for my local schools. How much did Labour’s formula short-change schools in Swindon?

[Mr Osborne]

The people of Swindon were short-changed in many ways by the Labour Government. Under the excellent leadership provided by my hon. Friend and his colleague, our hon. Friend the Member for South Swindon (Mr Buckland), not only is Swindon’s voice heard in Parliament, but the changes this Government are making will help families in Swindon, including those with children at school.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Given the news this week that the Government’s flagship green deal is failing in terms of both the planned jobs and its environmental targets, why will the Chancellor not introduce a big, bold investment in green infrastructure and home insulation in particular, to get people into jobs, get tax revenues up, reduce benefits and give hope to the millions of young people around the country today?

[Mr Osborne]

We have introduced investment. We have increased investment in renewable energy, so that a record amount is now going in. My right hon. Friend the Chief Secretary to the Treasury will set out the strike prices this week, which will give long-term investors the certainty needed to increase renewable energy investment.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

Why is the Chancellor not big enough to admit that he was wrong to claim that borrowing fell last year?

[Mr Osborne]

When I became Chancellor we were borrowing £157 billion a year. We are forecast to borrow £108 billion a year, which is a reduction in borrowing.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Why is the Chancellor going to decide what capital investment projects should be delivered in Wales if the Silk commission is implemented, considering that transport is devolved?

[Mr Osborne]

There is a specific issue around borrowing powers and the M4 corridor through Newport. That has to be done in partnership with the Government in London, but we are very aware of the benefits of that scheme. The Welsh Assembly and the people of Wales will welcome what we are proposing to do on the devolution of further tax and borrowing powers. We will set that out shortly.

[Jack Dromey (Birmingham, Erdington) (Lab)]

With the Government’s own figures showing that, despite all the promises, house building is down, construction is down, homelessness is up, rents are up, and housing waiting lists are at a record level, does the Chancellor accept that it is the legacy of his actions, including the catastrophic decision to cut £4 billion in affordable housing investment in 2010, that brings him to the Chamber today, and that he is responsible for three wasted years?

[Mr Osborne]

No, I do not accept that at all. The last Labour Government had a shocking record on house building, especially affordable house building. If the hon. Gentleman turns up in the Chamber tomorrow, he will hear some positive announcements about affordable house building.

[Diana Johnson (Kingston upon Hull North) (Lab)]

Lord Heseltine’s plan for localising regeneration funding in a single pot would have cost £49 billion. The announcement today is for just £2 billion. Lord Heseltine said that such a figure would be a slap in the face for local areas. Does the Chancellor agree, and why did he not stand up to the Lib Dem Business Secretary, who opposed that idea?

--- Later in debate ---

[Mr Osborne]

It is £2 billion a year, making £10 billion. For the first time, local enterprise partnerships will be able to put in multi-year bids on the basis of a competitive tender that will enable investment in skills, transport and housing locally. It is a revolution in how the money is spent, rather than the situation that we inherited, in which all the spending decisions were made by the people doing my kind of job.

[Jim Shannon (Strangford) (DUP)]

I thank the Chancellor for his commitment and his comments. He referred to extra money for the police in Northern Ireland to combat dissident republicans. Will he confirm that within that money sufficient funding will be available for the recruitment and training of new officers to combat the dissident republican threat?

[Mr Osborne]

We have provided just over £30 million to the Police Service of Northern Ireland. I am confident that within that resource the PSNI can undertake the recruitment and training that it requires to police Northern Ireland effectively for all communities.

[Nic Dakin (Scunthorpe) (Lab)]

Given that 16 to 18-year-olds attend schools as well as colleges, does the Chancellor’s unequivocal commitment to protect school funding in real terms extend to the funding of 16 to 18-year-olds?

[Mr Osborne]

We set out the school commitment in the direct school grant and the pupil premium. We have invested in the education of young people as well as the education of young adults.

[Alison McGovern (Wirral South) (Lab)]

Does the Chancellor believe that since he came to office the average British family is better off after inflation—yes or no?

[Mr Osborne]

I think that they have better economic prospects than they did under the previous Government.

[Sheila Gilmore (Edinburgh East) (Lab)]

The best way to reduce the housing benefit bill is to tackle the structural reasons for the rise in spending. What steps has the Chancellor taken in the statement to ensure that that happens? Not by building houses at 80% of market rent, I suggest.

[Mr Osborne]

I agree with the hon. Lady, as one of the things that we need to do is build more homes, and that is what we have set out to do. The housing benefit budget ballooned under the Labour Government, and we have taken action to curb it. If she is against any of our housing benefit reforms she can always let us know. As far as I can see, the Labour party has not made a commitment to reverse any of them at the moment, but who knows, that might change.

[Nia Griffith (Llanelli) (Lab)]

Confidence to invest long term in industry has been severely damaged by the Government’s creation of uncertainty over the EU, their failure to set 2030 decarbonisation targets, and their failure to control excessively high energy prices. The steel industry faces a crisis in demand. How many of the Chancellor’s mythical lists of infrastructure projects will actually begin this year?

[Mr Osborne]

As I said, we are spending more as a percentage of national income on infrastructure in this decade than in the previous decade. What I would say to the hon. Lady about energy-intensive industries such as steel is that there is support, which the Department for Business, Innovation and Skills is going to extend as a result of the statement to help them to cope with their high energy costs.

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

Living standards have fallen in every year of the Chancellor’s Government. When is he going to get the message that his strategy is not working?

[Mr Osborne]

As I said, the economic plan is taking Britain from rescue to recovery. I do not know if the hon. Lady knows any more about what the Labour party’s economic policy is. We did not hear from the shadow Chancellor the simple fact that he wants to borrow more. He has abandoned his argument but tragically he has stuck with the policy.

[Mr William Bain (Glasgow North East) (Lab)]

The £50 billion figure cited by the Chancellor for capital investment for 2015-16 is gross. Will he say whether net capital investment in 2015-16 will be higher or lower than the year before?

[Mr Osborne]

As I said, we are maintaining capital investment in the way that I set out in the statement.

[Mr Speaker]

Fifty-five Back Benchers contributed in 47 minutes of exclusively Back-Bench time, so I am grateful to colleagues, including, of course, the Chancellor.

Bill Presented

Railways Bill

Presentation and First Reading (Standing Order No. 57)

Caroline Lucas, supported by John McDonnell, Ian Lavery, Katy Clark, Jeremy Corbyn, Mr Elfyn Llwyd, Jonathan Edwards, Hywel Williams, Kelvin Hopkins, John Cryer, Grahame M. Morris and Martin Caton, presented a Bill to require the Secretary of State to assume control of passenger rail franchises when they come up for renewal; and for connected purposes.

Bill read the First time; to be read a Second time on Friday 18 October, and to be printed (Bill 81).

Oral Answers to Questions

George Osborne Excerpts

Tuesday 25th June 2013 Commons Chamber

[Mark Tami (Alyn and Deeside) (Lab)]

11. What recent assessment he has made of the effect on economic growth of the level of bank lending to businesses.

[The Chancellor of the Exchequer (Mr George Osborne)]

The Government are committed to creating a banking system that supports the British economy, rather than being supported by it. Two months ago, the Government and the Bank of England extended the funding for lending scheme, with a particular focus on small business lending. Last week, the Office of Fair Trading announced its review into how to make that lending more competitive, and at the Mansion House, I announced a plan for taxpayer shareholdings in RBS and Lloyds that will return these banks fully to the private sector, get value for the taxpayer and support the economy.

[Simon Danczuk]

Last Monday, I met businesses at Greater Manchester chamber of commerce and heard how banks were often failing them, thereby having an adverse impact on business performance. Does the Chancellor accept that bank lending to businesses has fallen over the past year and that the Government’s funding for lending scheme has totally failed businesses in Greater Manchester and the United Kingdom?

[Mr Osborne]

Gross lending to businesses is up under the scheme, but I am happy to agree with the hon. Gentleman that there is an issue—let us be honest, there has been an issue since 2008-09—with the contraction of bank lending to businesses in our communities. That is why we are taking further steps in two respects. First, with the Bank of England, we are extending the scope of the funding for lending scheme. It has proved very effective at getting mortgage rates down, and now we need to reduce the rates for small businesses. Secondly, we are sorting out the Royal Bank of Scotland, which is the largest lender to small businesses in our country.

[Mark Tami]

The Government claim to have established a business investment bank. How is it doing, and how many businesses has it actually lent money to?

[Mr Osborne]

The business bank, which was established last year, is now making loans to the funds that will lend to small businesses, creating non-bank lending channels. [Interruption.] There was no business bank under the Labour Government. I will tell the House what we had instead: we had a socking great banking crash under the Labour Government, and the person sitting opposite, the shadow Chancellor, was City Minister when it happened. We are cleaning up the mess from one of the biggest financial crises in the country’s history by ensuring that it never happens again.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

May I say to my right hon. Friend that after a lifetime as a stockbroker and fund manager, my instinct, as bond yields rise all over the world, is that we are heading for another banking crisis that will certainly choke off the already inadequate lending of banks to small businesses? May I put on the record my dismay that he has not yet committed himself to the total separation of investment from commercial banks, which I have been urging on him ever since he became Chancellor? I am absolutely convinced that if we do not go back to something approaching Glass-Steagall, it will be an absolute disaster when the next banking crisis hits us.

[Mr Osborne]

Of course, I respect my right hon. Friend’s experience. A powerful argument has been made that we should completely separate and split up retail banks from investment banks. We asked John Vickers to convene a commission to look at this specific subject, and he came forward with proposals to ring-fence retail banking, as he thought that that would be a better approach. We also set up a cross-party parliamentary commission to consider the ring fence, and it thinks that the ring fence is the best approach. It made a specific recommendation that we should give the regulator the power to split up a bank that had refused to comply with the ring fence, and we are giving the regulator—[Interruption.] The shadow Chancellor shakes his head, but again not one of these things was done when he was City Minister. Let me say to him again, because he obviously does not understand, that we are giving the regulator a specific power to split retail from investment banking in a bank that is ignoring the ring fence. I think that that is the right way forward.

[Mr Andrew Tyrie (Chichester) (Con)]

In the Treasury Committee this morning, the Governor of the Bank of England expressed considerable concern that unacceptable pressure had been brought to bear on the Prudential Regulation Authority from within Government, both from No. 10 and from No. 11, at the behest of the banks, putting at risk the regulator’s independence. Will the Chancellor reassure the House that he knew nothing about this, that he was not personally involved, that he will investigate the allegation that others did bring unacceptable pressure to bear, and that he will report to Parliament?

[Mr Osborne]

Of course, if there is unacceptable pressure, I absolutely say that that is not acceptable—if that is the right way to put it. The PRA, which we created, is completely independent and it has made its independent decisions on capital in our banks. We also have the Financial Policy Committee, which again is completely independent and able to make these recommendations. We empower our regulators to do their job. Of course, banks, consumer groups and anyone else can make their case, but this is ultimately an independent body, an independent regulator, that makes the judgment. That is the system we have created.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

The whole House agrees that we need to see more lending to small businesses and a return of RBS and Lloyds to the private sector so that taxpayers can get their money back, yet two weeks since the Chancellor helped to remove Stephen Hester from RBS, the taxpayers’ stake in the bank has fallen in value by £4 billion. Was that part of the plan?

[Mr Osborne]

In case the hon. Lady had not noticed, stock markets around the world are down. Bank stocks are down—

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

And RBS?

[Mr Osborne]

RBS: the world’s largest bail-out, under a Government who completely failed to regulate it. How dare the right hon. Gentleman have the audacity to come here and complain about the Royal Bank of Scotland? We are fixing the problems in the Royal Bank of Scotland. We are looking at the case for establishing a “bad bank”, which, as I said at the Mansion House, should have been done in 2008. We are going to fix the mess in the banking system that Labour left behind.

[Andrea Leadsom (South Northamptonshire) (Con)]

I congratulate my right hon. Friend on setting up the Parliamentary Commission on Banking Standards. Does he believe that implementing some of its recommendations will help banks to lend? Will he urge the Leader of the House to allocate time for a debate on this subject?

[Mr Osborne]

We will have plenty of time to debate the recommendations of the parliamentary commission, which I think has done an absolutely excellent job for the House, by the way. We will shortly have the Report stage of the Banking Bill, at which the Government will say how we intend to respond to those recommendations. If there is more work to be done on the drafting of specific amendments, those amendments can be tabled in the House of Lords and they will of course come back to the House of Commons as well. The whole purpose of the parliamentary commission was to enable us to get on with this. If we had created a public inquiry, as Labour recommended, it would only just be getting going now. Instead, Parliament has done what it is supposed to do, which is to investigate a problem and provide recommendations, and we are going to debate those recommendations here.

[Jason McCartney (Colne Valley) (Con)]

2. What assessment he has made of the effect of the pensions triple lock on pensioners.

--- Later in debate ---

[The Chancellor of the Exchequer (Mr George Osborne)]

Three years ago, I cut the small companies tax rate; this year, I have taken a number of further steps to support small businesses, including the new £2,000 employment allowance, which will reduce small businesses’ tax bill. Up to 1.25 million businesses will benefit, with about a third of all employers taken out of paying employer national insurance contributions altogether. We have also increased the annual investment allowance tenfold this year from £25,000 to £250,000. This directly helps small and medium-sized businesses looking to invest in the future.

[Sheryll Murray]

Small businesses in South East Cornwall welcome the measures that the Chancellor has already introduced. It has taken some of them to a position where they can expand, but they have been applying and waiting for grant funding for a considerable time. Will my right hon. Friend speak to his Cabinet colleagues to ensure that decisions are taken as soon as possible to allow these businesses to grow and to avoid missed opportunities?

[Mr Osborne]

I thank my hon. Friend for her work on the Finance Bill, which she put huge effort into. I know she is passionate about her constituents and the businesses of Cornwall. The Department for Environment, Food and Rural Affairs has already given £7 million in rural development grants to her constituency. She has raised some specific cases; a company that makes Cornish Blue has been waiting for what I think is an unacceptable period for an answer from another Government Department about a grant. I will personally look into this matter and see if we can speed the award.

[George Freeman]

In the £50 billion UK life science industry, the Chancellor’s support for the patent box, the research and development tax credits and a globally competitive corporation tax rate are helping to secure global companies here, as evidenced by Johnson & Johnson’s recent announcement of a global innovation centre here in the UK. Does he also agree that we need to support insurgent small and medium-sized enterprises emerging into the sector? I would like to highlight the role of the biomedical catalyst fund in securing over 50 projects for the UK and £1 billion in venture capital funding.

[Mr Osborne]

My hon. Friend’s knowledge in this area is well known, and he has applied it as a Member of Parliament to promoting schemes that help the life sciences industry—and not just the big companies, although we welcome the Johnson & Johnson announcement, but the small companies, too. The biomedical catalyst fund has been very successful at supporting small businesses in this sector. Without giving too much away about tomorrow’s announcements, I can tell him that we will go on funding this scheme.

[Bill Esterson (Sefton Central) (Lab)]

Can the Chancellor tell us how many firms have been helped by his small firms national insurance holiday since it started three years ago, given that he claimed it would help 400,000 firms?

[Mr Osborne]

About 20,000 firms have been helped—[Interruption.] Well, 20,000 firms have been helped, small business creation is at the highest level since the 1980s and there are over 1 million new jobs in the private sector. And we will bring before Parliament new legislation to make sure that the first few thousand pounds of their national insurance bill is completely wiped out—they will not have to pay it at all. That is a real success story, and if the Opposition want to vote against it, they can be my guest.

[Ms Margaret Ritchie (South Down) (SDLP)]

Finance and credit are the lifeblood of small businesses. The Government have been pumping money into the banking sector, so what is the Chancellor doing to ensure that that money goes to small businesses rather than to repair bank balance sheets?

[Mr Osborne]

Of course, as we discussed earlier, the capital position of the banks is important, but the funding for lending scheme is now focused on small business lending. I know that there is a particular issue with the very tough situation that the banking sector faces in Northern Ireland and the problems from the Irish Republic that have spilled over into Northern Ireland. One thing we are doing with the Royal Bank of Scotland is looking specifically at Ulster and the issues surrounding some of the bad loans made in the past, and at how we can help that bank to make good loans in the future to help the businesses of Northern Ireland. We are specifically supporting the Northern Irish economy and we are aware of its problems.

[Mr David Amess (Southend West) (Con)]

Does my right hon. Friend agree that extending rate relief to a further half a million small businesses will help many of them in the constituencies of Southend West and Rochford and Southend East?

[Mr Osborne]

Small business rate relief has helped many small firms to cope with the cost of rates, and we have been able to extend it year after year. We will have to make a decision later in this Parliament about a further extension, but there is clear evidence that the current extension is doing a great deal of good.

[Anas Sarwar (Glasgow Central) (Lab)]

The main complaint from businesses throughout the country, both small and large, is that they do not feel they are receiving the support that they need from the banking sector. Given that state-owned banks are among the poorest in terms of lending, what is Jeffrey—sorry, the Chancellor of the Exchequer—doing about it?

[Mr Osborne]

As I said earlier, the Royal Bank of Scotland is the largest lender to small businesses in our country. That is why it is such an important support for the economy. We are taking a serious look at how we can enable it to move on from all the bad loans—all the bad bets that it laid—during the middle years of the last decade, when, by the way, the shadow Chancellor, who is still muttering from a sedentary position, was City Minister.

Surely it is in all our interests to try to sort out the banking problem, but I have no idea whether Labour Members support our proposal on the Royal Bank of Scotland. We have heard absolutely nothing from them. However, what we are doing shows that we are actually confronting the problems that we inherited.

--- Later in debate ---

[Simon Danczuk (Rochdale) (Lab)]

T1. If he will make a statement on his departmental responsibilities.

[The Chancellor of the Exchequer (Mr George Osborne)]

The core purpose of the Treasury is to ensure the stability and prosperity of the economy.

[Simon Danczuk]

In his March Budget, the Chancellor boasted that Government borrowing fell last year. Will he confirm that figures published by the Office for National Statistics on Friday show that Government borrowing last year actually did not go down, but went up?

[Mr Osborne]

The Office for National Statistics revised down borrowing for 2010-11, 2011-12 and 2013-14; that is actually good news.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

T2. The quality of schools in my constituency is very high. Will my right hon. Friend outline the Government’s intentions on school funding?

[Mr Osborne]

Everyone knows that Britain needs to live within its means, and tomorrow I shall set out the next phase of the economic plan to move Britain from rescue to recovery. However, I can confirm that we will offer real protection for our national health service and our schools. Those vital public services are an investment in our economic future, and they are all about doing what we need to do to win that global race.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

The whole House will have heard the Chancellor not answer the topical question asked by my hon. Friend the Member for Rochdale (Simon Danczuk). The reason is that, despite all the Budget speech bluster, borrowing last year went not down, but up.

Let me ask the Chancellor another question. The bonuses paid in the financial services sector this April, the first month of the new tax year, were 65% higher than in the same month last year—up by a total of £1.3 billion. Can the Chancellor tell the House why bank bonuses rose by £1.3 billion this April?

[Mr Osborne]

First, on borrowing, the Labour Government were borrowing £157 billion a year. This Government borrowed £118 billion last year, which represents a fall in borrowing. The deficit is down by a third because we are taking the tough decisions to ensure that Britain lives within its means. On bonuses, they are 85% lower than when the right hon. Gentleman was City Minister.

[Ed Balls]

The fact is that the Chancellor promised to get the deficit down, but it is rising, and that month-on-month rise in bonuses is the highest since records began in 2000. There is a simple reason why that happened: thousands of very highly paid people deferred their bonuses into the new tax year to take advantage of the Chancellor’s top rate tax cut, which has cost the Exchequer millions of pounds in lost tax revenue. How can the Chancellor still say, “We’re all in this together,” when living standards are falling for everyone else and the economy has flatlined for three years? Is not this economic failure the reason why the Chancellor will not balance the books in 2015 and why he will be coming back to the House tomorrow to ask for more cuts to public services? He is unfair and out of touch, and he is now revealed as totally incompetent.

[Mr Osborne]

Getting a lesson from the shadow Chancellor on how to balance the books is like getting a lesson from Dracula on how to look after a blood bank. He finds himself in a most extraordinary situation. On Saturday, the Labour leader said that Labour was going to rule out borrowing more. On Sunday, when the shadow Chancellor was asked whether Labour could borrow more, he said, “Yes, yes, of course,” and then, on Monday, the Labour party committed itself to higher welfare spending—it is a complete shambles. On the eve of the spending review, Labour finds itself in the extraordinary situation in which it has completely abandoned the economic argument that it has been making for the past three years, but kept the disastrous economic policy. That is a hopeless position. The shadow Chancellor has led Labour Members up a cul-de-sac and they have to find their way out of it.

[Chris White (Warwick and Leamington) (Con)]

T4. In the last Budget the Chancellor announced a video games tax relief to help support UK publishers and developers, which was a very welcome step. However, the European Commission has launched an investigation into this tax relief. Will my right hon. Friend join me and industry representatives such as TIGA so that we may make the best case possible for this vital policy?

--- Later in debate ---

[Mr Iain McKenzie (Inverclyde) (Lab)]

T3. Since the Chancellor’s last spending review the US economy has grown four times faster than the UK’s. Is this not further evidence of the Chancellor’s failed policies?

[Mr George Osborne]

The US fiscal consolidation is faster this year than the UK consolidation. The structural deficit in the UK has fallen by more than in the US. But look at the UK—we have created over a million new jobs in the private sector. That is one of the most impressive employment records anywhere in the world.

[Glyn Davies (Montgomeryshire) (Con)]

T6. Devolution is a continuing process. Does my right hon. Friend agree that if the National Assembly for Wales is to develop into a fiscally responsible governing institution, it must have responsibility for raising a significant part of its own budget?

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

T5. May I take the Chancellor back to the question posed by the shadow Chancellor and by my hon. Friend the Member for Rochdale (Simon Danczuk)? Did Government borrowing rise in 2012-13, as compared to 2011-12?

[Mr George Osborne]

Figures from the Office for National Statistics show that the deficit fell from 7.8% to 7.7%, so it came down.

[Priti Patel (Witham) (Con)]

T7. In the light of the Chancellor’s assiduous commitment to deficit reduction, what assessment has my right hon. Friend made of the Opposition’s spending plans, which appear to consist of more borrowing, more debt and a return to Labour’s failed policy of boom and bust?

[Mr Osborne]

rose—

[Mr Speaker]

Order. The Chancellor is not responsible for Labour policy. A very short one-sentence reply will suffice, then we must move on. Members must ask questions that are orderly, not disorderly.

[Mr Osborne]

My short answer is thank God I am not responsible for Opposition policy.

[Andrew Gwynne (Denton and Reddish) (Lab)]

T8. Why does the Office for Budget Responsibility say that the deficit this year will be the same as it was last year and the year before? Is not the truth that the Government’s stalled plan on jobs and growth has led to this appalling situation?

[Mr Osborne]

Let me tell the hon. Gentleman the appalling situation. It was an 11% budget deficit that the Opposition left us when they left office—11%. It is now going to be 7.7%. Borrowing—[Interruption.] The right hon. Member for Morley and Outwood (Ed Balls) asks how much money. I will tell him. The Opposition were borrowing £157 billion. We are now borrowing £118 billion. Borrowing is not going up. It came down from £157 billion to £118 billion, and if the right hon. Gentleman cannot do that maths, no wonder he left the country in such a mess.

[Mr David Ruffley (Bury St Edmunds) (Con)]

The A14 Cambridge toll road is strategically vital for the golden economic triangle that is Cambridge, Norwich and Ipswich—

[Mr Ruffley]

And indeed Colchester. Can my right hon. Friend the Chancellor confirm that he will have that at the forefront of his mind when the Treasury makes its capital allocations?

[Mr Osborne]

The A14 is a strategically important road, not just for my hon. Friend’s constituents, but for the whole country. It links ports to many of our largest cities. It is at the forefront of our mind. My right hon. Friend the Chief Secretary will set out on Thursday not just the capital plans for 2015-16, important as they are, but our long-term plans for road investment. Central to that is making sure that Britain has the economic infrastructure that we need to succeed in the modern world, and the A14 is part of that infrastructure.

[Paul Goggins (Wythenshawe and Sale East) (Lab)]

T9. The Chancellor must be concerned about the spiralling costs of air travel, with fares currently up by 22%. Does he agree that we need to increase competition by making better use of spare capacity at regional airports? To that end, will he agree to look again at reforming air passenger duty in order to promote growth at airports such as Manchester airport?

[Mr Osborne]

The right hon. Gentleman and I represent both ends of the runway at Manchester airport and know how important it is to our constituents and to economic growth in the north-west. We looked specifically at whether to split APD into a tax for hub airports and a tax for regional airports, but we ruled that out because we do not think that it would be fair. We have stuck with the APD rates we inherited from the previous Government. With regard to the campaign being run on the subject, it is important to recognise that airlines often refer to charges and taxes, and many of the charges are those, such as fuel charges, that they have chosen to put on. I understand the argument, because we have collectively—it was the previous Government’s decision—taken a tough decision on APD rates, but I think that people should read the small print of the campaign.

[Mr Brooks Newmark (Braintree) (Con)]

Does my right hon. Friend share my concern that, notwithstanding the Alice in Wonderland economic world of the shadow Chancellor, a plan to borrow more will not actually bring borrowing down?

[Mr Osborne]

I completely agree that Labour’s plan to borrow more to borrow less is completely nonsensical. It really is extraordinary that a day after the Labour leader said that Labour had ruled out borrowing more, the shadow Chancellor committed the party to doing just that. It is a catastrophic position for his party to hold. Frankly, I do not think that the country will ever adopt it.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Given that the Chancellor appears unwilling to give us the answer that dare not speak its name on last year’s borrowing, I will ask him about the time available to debate the recommendations of the Parliamentary Commission on Banking Standards. A number of those recommendations require legislation before they can be given effect. The Government have allocated only one day on Report for the banking Bill. Although I respect their lordships, surely it should be the elected House that is given a chance to debate the recommendations. Will he reconsider and allow two days on Report?

[Mr Osborne]

First, I thank the right hon. Gentleman for his contribution to the Parliamentary Commission on Banking Standards, along with all Members of this House and the other House who took part in it. The very fact that the Commission has done its work speedily means that we can consider its recommendations for the banking Bill going before Parliament. Of course, allocation of time is a matter for the Leader of the House to make clear in his statement. The right hon. Gentleman has my commitment that over the course of the Bill’s scrutiny—it will go to the Lords and then come back to the Commons—there will be proper time to consider all the Commission’s recommendations and, if necessary, for the Government to draft changes in order to implement them. It is a parliamentary commission, which is what I wanted it to be, and it is of course right that Parliament should consider its report in detail.

[Mr Douglas Carswell (Clacton) (Con)]

In 2007, 50% of UK gilts were purchased by insurance companies and pension funds. Last year the figure had fallen to 22%, the lion’s share of UK gilts now being bought by the Bank of England. Does my right hon. Friend share my concern that we are funding public sector overspend by having one branch of the state write out IOUs for another? Can that be sustained?

[Mr Osborne]

The arrangements for quantitative easing are well established, and the decisions on whether to increase asset purchases are within the envelope that I set for the independent Monetary Policy Committee. I think that an active monetary policy has helped sustain demand over the past few years. It is anchored in a credible fiscal policy, the next stage of which we will set out tomorrow.

[Stewart Hosie (Dundee East) (SNP)]

It is six months since the Banking Commission’s first report warned against a delay in ring-fencing, so it is disappointing that the ring-fencing of the banks might not be fully implemented until 2019. Can the Chancellor give one guarantee today—that the markets division of RBS, and comparable departments in other large banks, will be outside the retail ring fence and not liable to taxpayer assistance when the new rules are in place?

[Mr Osborne]

First, the timetable is one that John Vickers and his commission themselves proposed. Secondly, it is not for me to make individual decisions about individual banks; that is for the boards of those banks and, of course, the regulator. But the whole purpose is to insulate the retail bank from things that go wrong in the investment bank and, above all, to make it possible for the person doing my job to be able to resolve the retail bank and keep the retail operations going without having to bail out the investment banking arm. Indeed, that whole problem of “too big to fail” is something we need to deal with.

[Sir Bob Russell (Colchester) (LD)]

It is the Government’s policy that, to cover cutting the Army to its smallest size since the battle of Waterloo, people should be encouraged to join the reserves. Leading by example, will the Chancellor of the Exchequer say how many members of his staff have joined the Territorial Army since January this year?

Royal Bank of Scotland

George Osborne Excerpts

Thursday 13th June 2013 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Royal Bank of Scotland (RBS) yesterday announced that Stephen Hester will be stepping down as chief executive officer (CEO) later this year.

When Stephen Hester took on the job at RBS in 2008 it was on the edge of collapse. RBS today is safer, stronger and better able to support its customers. I commend Stephen Hester for everything he has done to make this turnaround possible.

Having brought RBS back from the brink, now is the time to move on from the rescue phase to focus on RBS being a UK bank that provides greater support to the British economy, helping businesses and job creation here, and which can return to the private sector in a way that ensures value for the taxpayer.

ECOFIN

George Osborne Excerpts

Monday 3rd June 2013 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

A meeting of the Economic and Financial Affairs Council was held in Brussels on 14 May 2013. Ministers discussed the following items:

Banking Recovery and Resolution

There was a state of play discussion on the banking recovery and resolution directive proposal, focusing in particular on the design of the bail-in tool.

Current legislative proposals

The presidency updated Ministers on the revised rules for markets in financial instruments directive/regulation (MiFID/MiFIR); the market abuse directive; the transparency directive; the mortgage credit directive; banking supervision; the capital requirements directive IV; and the anti-money laundering directive.

Draft Amending Budget No 2 to the General Budget 2013

ECOFIN reached a political agreement on the draft amending budget No 2 to the general budget 2013, on the basis of a proposal from the Irish presidency. ECOFIN agreed in principle to a first stage budget amendment and to consider a second stage amendment later in the year. ECOFIN declared to formally adopt its position on the draft amending budget at a later stage in parallel with the conclusion of talks on the EU’s multi-annual financial framework (MFF) for 2014-20. The UK, along with Denmark, Finland, the Netherlands and Sweden, opposed the amendment and statement, expressing dissatisfaction at the Commission’s unjustified request for substantial additional resources.

Savings taxation and mandate for negotiations of amendments to the Savings Taxation agreements with third countries

ECOFIN adopted a mandate for the Commission to negotiate amendments to the savings taxation agreements with third countries. ECOFIN also discussed a proposal for a Council directive amending the EU savings directive which will be further discussed at the May European Council.

Council Conclusions on tax evasion and fraud

ECOFIN adopted a set of Council conclusions on the Commission’s action plan to tackle tax fraud and evasion and accompanying two recommendations on good governance in tax matters in third countries and on aggressive tax planning. The conclusions support efforts at national, EU, G8, G20, OECD and global levels on automatic exchange of information and on improving the implementation and enforcement of standards of beneficial ownership information.

G5 Pilot Facility on automatic exchange of information in the area of taxation

The UK, on behalf of the other members of the G5 (France, Germany, Italy and Spain) presented to Council on the G5 pilot multilateral automatic exchange of information facility. The UK, along with 16 other member states submitted a joint minute statement, strongly supporting the initiative for a pilot of multilateral automatic information exchange based on agreements with the US, and requesting the Commission to support and promote the work of the OECD, G8, and G20 in developing a single global standard for automatic exchange of information, with a view to its quick implementation also at EU level.

Macro-economic Imbalances Procedure: In-Depth Reviews

ECOFIN adopted Council conclusions on the results of the UK and 12 other member states’ macro-economic imbalances procedure: in-depth reviews. The UK does not have an excessive imbalance and does not need to take further action under the macro-economic imbalances procedure. The UK supports the macro-economic imbalances procedure as a means of strengthening European economic governance, particularly in the euro area.

Towards a deep and genuine Economic and Monetary Union: Commission communications

The Commission presented the two communications on a deep and genuine economic and monetary union which were published on 20 March. These cover the introduction of a convergence and competitiveness instrument and ex ante co-ordination of plans for major economic policy reforms.

Follow-up to the G20 Finance Ministers and Governors (18-19 April) and IMF/World Bank (19-21 April) 2013 Spring meetings in Washington. USA

The presidency and the Commission debriefed Ministers on the main outcomes of the G20 Finance Ministers and Governors and IMF/World Bank spring meetings.

Economic Growth

George Osborne Excerpts

Wednesday 15th May 2013 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

That was certainly an odd speech from the shadow Chancellor. He called me a tactical genius, but those on his side are going around calling him a busted flush, and after the extraordinary 40 minutes of comments we have just heard from him, we can see why. The contrast is with a Government who are building an economy where those who want to work hard and get on are rewarded. The contrast is with a tax system that is being changed to support effort, with the largest ever increase in the personal allowance. The contrast is with a welfare system that is being changed so it always pays to work and benefit bills are being capped so no family gets more from being on benefits and out of work than the average family gets from being in work.

In this Queen’s Speech we have measures to help those who want to set up a small business and employ people through our employment allowance—which was not mentioned by the shadow Chancellor, but I assume the Labour party will not vote against it. We have measures to help families who dream of home ownership and to help them with their mortgage costs. We have measures for savers, with a Pensions Bill that will provide a generous single-tier pension, and we have measures to help those who want to stay in their homes and avoid the lottery of care costs, with our Care Bill. The only reason we can do all these things is because we are clearing up the mess and the things that went so badly wrong in our economy.

[Clive Efford (Eltham) (Lab)]

On the issue of fairness, the 13,000 people who earn more than £1 million a year share a combined income of £27.4 billion, and they are going to share in a £1.2 billion payout. How can that be justified and fair?

[Mr Osborne]

In every single year under this Government the rich will pay more in tax than in any single year of the Labour Government that the hon. Gentleman consistently supported, and the top rate of tax will be higher than in any single year of the Labour Government he supported. We put up capital gains tax so we avoided the scandal that they presided over—indeed, that the shadow Chancellor presided over—of cleaners paying higher rates of tax than the hedge fund managers they work for. That is what we have done to ensure fairness in our tax system, and that is what we are going to continue to do.

[Anas Sarwar (Glasgow Central) (Lab)]

The Chancellor said those who work hard will be rewarded. Can he explain why wages are falling, household budgets are falling and the cost of living is going up? How is that fair?

[Mr Osborne]

Let us look at what the Governor of the Bank of England said in his press conference this morning:

“there is a welcome change in the economic outlook…But this is no time to be complacent—we must press on to ensure a recovery”.

Yes, there was also the disappointing news that unemployment had gone up, but we also saw that the claimant count and youth unemployment had come down, and the monthly unemployment data were a lot more encouraging than the three-month survey. That is the reality of the current data.

[Geraint Davies]

Does the Chancellor agree that the key problem is that the debt:GDP ratio will rise from 55% in 2010 to 85% by 2015? The answer to that problem is not just to cut the debt, but to increase GDP. Under Labour, GDP went up by 40% between 1997 and 2008, and the Chancellor inherited a growing economy which is now flatlining because of his policies.

[Mr Osborne]

We inherited an 11.5% budget deficit that was adding to our national debt every year, and what the hon. Gentleman and the shadow Chancellor want to do is add further to borrowing. The shadow Chancellor was asked time and again what the cost of the proposals in the amendment the Opposition are asking the House to vote on tonight would be. He would not give that figure, but I will give it for him: it is a £28 billion amendment that would add to borrowing. He comes up with the ludicrous argument that by borrowing more, we can borrow less. That is why he is making so little progress with his economic argument.

[Chris Williamson (Derby North) (Lab)]

Will the Chancellor at least acknowledge that when he came into office he inherited a growing economy, and his policies have led to it flatlining?

--- Later in debate ---

[Mr Osborne]

This is what I have to say about the idea that this Government had some kind of golden economic inheritance from the Labour party: we inherited a situation in which Britain had had the deepest recession since the 1930s, the worst banking crisis in the entirety of British history and the highest budget deficit in the entire peacetime history of this nation. If that is a golden economic inheritance, I would hate to see what the hon. Gentleman thinks a hospital pass looks like.

The shadow Chancellor mentioned France in his remarks. Exactly a year ago the Labour leader could not contain his excitement about the economic programme being unveiled in France and about the red carpet being rolled out for him at the Elysée palace. “Chers camarades” is how he addressed the Socialist party gathering. He said, “What President Hollande is seeking to do in France, I want to do in Britain.” We do not hear much these days about Labour’s French connection. We still have liberté and egalité, but not much fraternité—although fraternity has never been a great topic for the Miliband family.

What we did not hear from the shadow Chancellor was his response to the fact that 1.2 million jobs have been created in the private sector, and that although, yes, our deficit is still too high, it has fallen by a third. He says we are borrowing more. We were borrowing £158 billion a year as a country in 2009-10, and this year it is forecast that we will be borrowing £114 billion. That is a £45 billion reduction in borrowing. None of that has been easy to achieve, and every single measure has been opposed by Labour. Not a single measure in its amendment today would help deal with that deficit, but our plan of monetary activism, fiscal responsibility and supply-side reform is delivering progress.

[Andrew Selous]

On employment, is the Chancellor aware that the United Kingdom’s overall employment rate is growing at almost double that of the United States and is rising faster than that of any other G7 country?

[Mr Osborne]

My hon. Friend is absolutely right. Last year, employment in the UK grew faster than in the US, France, Germany, Japan and the eurozone as a whole. Employment in the UK is now above its pre-recession level. Of course we must go on taking the difficult measures necessary to get our deficit under control, and make sure we support businesses that want to hire people to support the private sector recovery. The path being offered by the Opposition, however, would lead to complete disaster.

[Mr Jim Cunningham (Coventry South) (Lab)]

When the Chancellor’s party was in opposition, the right hon. and learned Member for Rushcliffe (Mr Clarke) took the credit, before the banks collapsed, for the economic prosperity, claiming he had created it when he was Chancellor. How does the current Chancellor answer that point?

[Mr Osborne]

The hon. Gentleman is saying that somehow we have a responsibility for the financial crash or for the problems in the banking industry, but he neatly skips the fact that not only was Labour in office for 13 years, but the shadow Chancellor was the City Minister. He did not have any old job in Government —he was the City Minister when Northern Rock was selling those 120% mortgages and the Royal Bank of Scotland was thinking of taking over ABN AMRO. He is the architect of the tripartite regulation, which failed so catastrophically. He is, literally, the last person to have any credibility on this subject.

[Nadhim Zahawi]

The shadow Chancellor also claimed victory in keeping this country out of the euro. Will the Chancellor remind the House of the cost of the euro preparation unit, and when that unit was closed down?

[Mr Osborne]

The euro preparation unit was shut down by this Government in 2010, but the shadow Chancellor does not seem to know what Labour policy is. The Labour party is committed in principle to joining the euro. [Interruption.] The shadow Treasury team do not know what the monetary and currency policy of their own party is—that is absolutely ridiculous.

[Charlie Elphicke]

The Government have set out a clear and costed economic policy, which they are pursuing. Does the Chancellor share my concern that the Opposition cannot set out their costings, cannot say how much they would borrow and cannot even say whether they would back a referendum? The shadow Chancellor has been completely unable to answer any questions put to him in any straight way whatever.

[Mr Osborne]

The shadow Chancellor could not answer the simple question of how much the amendment he is asking us all to vote on this evening would cost. Surely he must reflect a little and realise that each year his appearance in these debates is a source of consolation and comfort to the Government. He must wonder why each year he makes the same arguments for borrowing but there is no improvement in Labour’s economic credibility. He does not seem to understand that the public think that Labour spent too much, wasted their hard-earned money and would do it all again. Does he not feel that he owes it to the British people to apologise for the mistakes he has made and the damage he has inflicted on their living standards? Should he not stand up and say, “I’m sorry, we got it wrong and we won’t do it again”?

[Sammy Wilson (East Antrim) (DUP)]

The Chancellor’s point, “You can’t borrow more to borrow less”, is a good soundbite, but he does himself a disservice, because some of the borrowing undertaken by this Government has been very effective in reducing the deficit. Only yesterday, we saw 850 new jobs in Allstate in Belfast as a result of investment in the broadband network—that is 850 new taxpayers. Does he not accept that we can borrow, and that by borrowing and putting the money into the right things we can bring the deficit down?

[Mr Osborne]

I am all for spending money on vital economic infrastructure, including broadband, and all for trying to switch the budget more from current spending to capital spending. That is precisely what we are engaged in as part of this spending round, but we have to take the hard decisions on where we are going to get our revenue from or take the hard decisions on what we will cut instead. We are making a sensible switch towards capital spending.

[Mr George Howarth (Knowsley) (Lab)]

Can the Chancellor name a single occasion before the banking problems in 2008 when he and his party argued for tighter regulation of the City?

[Mr Osborne]

My party voted against the tripartite arrangement. I do not have the quote with me today—I will send it to the right hon. Gentleman or ensure that my right hon. Friend the Chief Secretary has it for the wind-up—but the shadow Chancellor at the time, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), warned in this House that taking prudential regulation away from the Bank of England was a massive mistake and that the Bank of England would not be able to spot the growth of debt bubbles in the economy. Tragically, that is precisely what happened a decade later, and in part the responsibility lies with the people who set up the regulatory system. Is it not extraordinary that Labour Members get up and say that the Conservatives said this or that, yet we are looking at the City Minister at the time? We are looking at the person who, before that, was the chief economic adviser who devised the system and who used to take pleasure in telling everyone that he turned up in government and gave Eddie George a letter saying that he was no longer in charge of banking regulation—that used to be the shadow Chancellor’s story, but he never talks about it now.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

I think the country understands that we could not go on as we did, with a completely unregulated City, with bonuses out of control and with unjustifiable profits. The Government’s policy on taxation is fairer now than it ever was under the previous Government. May I ask the Chancellor, however, to address the matter of the housing market, to which he partly referred? In addition to the welcome measures in the Queen’s Speech, will he look into how we can increase the supply of social rented housing and deal with the fact that many non-domiciled people are buying property in this country, not to live in or to rent out, but to keep empty, forcing up prices for everyone, beyond what people can afford?

[Mr Osborne]

We are putting in place, right now, new guarantees—the first time that the Treasury has done this—for social housing associations to enable them to build more social homes; in the Budget, we also confirmed support for an additional 30,000 social homes, so we are taking action to help on that front. With our Help to Buy scheme we are also helping those who want to buy their own home in the private market. My right hon. Friend is absolutely right that we should do both, which is precisely what we are doing.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

As we learned with great interest, there was much in the Queen’s Speech that will affect employment, skills and manufacturing in our country. This is an important part of our country’s future. Can the Chancellor assure me that there is a unit in the Treasury—or a plan for the Treasury—to carry out an independent evaluation of how skills, jobs and manufacturing would be affected if this country left the European Union?

[Mr Osborne]

I will come on to talk briefly about reform in the European Union, but I am clear that an unreformed European Union is also doing damage to British competitiveness and British jobs.

[Margot James (Stourbridge) (Con)]

The estimated cost of the Labour party’s plans is £28 billion. Labour opposes every one of our spending cuts, so does that not imply that it would fund the whole lot by pushing this country’s borrowing back towards £150 billion? Is that why the shadow Chancellor is so reluctant to say what more borrowing he could commit to?

[Mr Osborne]

My hon. Friend is right to say that that is the approach of the shadow Chancellor. The right hon. Member for Neath (Mr Hain), who is sadly not in his place, gave the shadow Chancellor some unsolicited advice last week—I think it was unsolicited. He said:

“Labour’s Treasury team need to get out on the stump now and work even harder. It shouldn’t just be left to Ed and Harriet”—

Miliband and Harman—

“to carry the heavy load”

on shows such as the “World at One”. We could not agree more, because it is fair to say that when the Labour leader appears on the radio—I am not sure how to put this delicately—there is a little confusion about what Labour’s economic policy might be. Ten times he was asked whether borrowing would go up or what his party’s policy was, and he did not reveal it. I will be fair to the shadow Chancellor and say that he is much more straightforward. He has a much clearer message than his leader: “Vote Labour and borrowing will go up. Vote Labour and welfare bills will rise.” Vote Labour and he will do it all again. It is not just the right hon. Member for Neath who wants to see the shadow Chancellor on the media more—we want to see him on the media much more.

[Helen Goodman (Bishop Auckland) (Lab)]

Yesterday, I met the chairman of Fujitsu, which has just put £800 million into the British economy. He told me that his company had done so only because this country is in the European Union. He was, however, rather disappointed not to have had a reply from the Prime Minister after writing to him with that news. Does the Chancellor of the Exchequer not understand that his Government should be more interested in providing stability for business than in pleasing their own Back Benchers?

[Mr Osborne]

It is very good news that Fujitsu is choosing to employ in the United Kingdom. I do not see the hon. Lady’s intervention as a hostile one that has put me on the back foot; what am I supposed to do about the fact that international companies are choosing the United Kingdom as the place to invest and create jobs? That is a tough one!

I have to admit that the hon. Lady has a point, but let me come on to say something about the change that is required, including the change in the European Union, which of course is a subject of debate today.

It is true that for much of my political life and, I suspect, the political life of many in the House, the concerns about Europe have primarily been ones of sovereignty and constitutional power—not exclusively, but those have been the most dominant. Those concerns have not disappeared, but they have been complemented by economic concerns, and those economic concerns have grown. There is concern that the European prescription of high taxes, expensive social costs and unaffordable welfare is slowly strangling the European economy. There are concerns from business that directive after directive, regulation after regulation load costs on European companies, especially small firms, and cripple their ability to compete against new challengers around the world.

The crisis in the eurozone has created an immediate institutional challenge for the UK: as 17 member states attempt to take steps to save their monetary union, how can we change the EU to protect our interests and make it work for us? But the crisis has only accelerated an economic argument that was coming anyway: is Britain’s membership of the European Union right for Britain’s economic future? My answer, like the Prime Minister’s, is that if we can achieve real change in Europe and our relationship with the EU, then yes, it is. That is the renegotiation that my right hon. Friend the Prime Minister seeks—a Europe that is more globally competitive and more flexible, a Europe that creates jobs and offers its people prosperity and accountability.

[Mr Bone]

Is not the Chancellor exactly right? Is not his view shared by those on the Conservative Benches? I am sure the Chancellor is forced by coalition politics not to be able to vote for the amendment, but if he were free from that restraint, would he back the Prime Minister’s policy by voting for the amendment tabled by my hon. Friend the Member for Basildon and Billericay (Mr Baron)?

[Mr Osborne]

This is a coalition Government with a coalition Queen’s Speech, which contains things such as the single-tier pension, the Care Bill and the help for small employers, which will make a real difference to people across the country. Our view is that the best route to achieving what I know my hon. Friend wants to achieve is by legislating in this House. As the Prime Minister said in his January speech, we now have draft legislation for an in/out referendum on the EU. We have done it in good time for this Session’s ballot for private Members’ Bills. It is now open to any hon. Members who do well in that ballot to adopt the draft Bill that we published yesterday and take it forward as the basis for legislation. As the Prime Minister said yesterday, we will do everything we can to make it law.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

A moment or two ago the Chancellor said that if the renegotiation that the Prime Minister has set out on produced fundamental change, he would vote to stay in the EU. What will his position be if the renegotiation does not produce much change? That is what happened the last time this was tried in the 1970s. Not much change is not exactly an unlikely prospect, given the attitude of other European member states so far to the Government’s stance.

[Mr Osborne]

I do not think the Prime Minister will fail in his negotiating effort. I do not think the Conservative party will fail in its negotiating effort with the European Union. Do Members know why I do not think we will fail in that effort? The Prime Minister pulled us out of the eurozone bail-outs when everyone said that was impossible. The Prime Minister delivered a cut in the European budget when everyone said that was unachievable. The Prime Minister vetoed a bad treaty when people said that was unprecedented. I am confident we can achieve that new settlement.

There is another reason why I am confident we can achieve that settlement. I see around the table in Europe—around the ECOFIN table, where I was yesterday— many countries as concerned as we are about the future of jobs and investment on the European continent, people who know that the EU is not working as currently arranged.

[Several hon. Members]

rose—

[Mr Osborne]

I will give way to the Scottish nationalists in a moment.

It was not this Chancellor but the German Chancellor who said the other day:

“If Europe today accounts for just over 7% of the world’s population, produces around 25% of global GDP and has to finance 50% of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life.”

That was the leader of Germany speaking. I believe that there are out there other people who also seek change, but above all, for the United Kingdom, because of the changes happening in the eurozone, we need a new settlement and I am confident that the Prime Minister will deliver it.

[Pete Wishart]

The Chancellor of the Exchequer and I know that the UK is halfway out of the European Union. Does he agree that the best way for the Scottish people to remain within the European Union is to vote yes in the referendum next year?

[Mr Osborne]

As our Scotland analysis papers show, Scotland would have to apply to join the European Union as it became a new state. I am glad the Scottish National party is taking part in this debate on economic policy. Perhaps we will get a clearer view from SNP Members, after the shambles of the past three weeks, of what their policy is on the currency that Scotland would use, should Scotland vote to leave the Union. We have not had a clear answer. Some members of the SNP have said that Scotland should have its own currency, others have said that Scotland should join the euro, and still others have said that they would negotiate a monetary union with all of us in order to keep the pound. There is complete confusion in the SNP ranks and until they have a clear answer to that, they will not be listened to on much else.

[Mr Jenkin]

Does my right hon. Friend agree that the Government are committed to what one might call a policy of negotiate and decide, although that has a familiar ring to it? Would it not help the clarity of this debate if the Government set out exactly what they intend to negotiate on? That has not been clear from anything they have so far said.

[Mr Osborne]

As my hon. Friend knows, and he takes a close interest in these matters, this is the beginning of a process of setting out what we want to achieve in a renegotiation, and in a conversation about that. Of course, we will then seek to achieve that renegotiation, achieve that new settlement—I am confident that after the election the Prime Minister and a Conservative Government will be able to achieve that—and put it to the British people in a referendum.

[Charlie Elphicke]

One of the things my right hon. Friend drew attention to was the problems facing our European neighbours and the challenges posed by their welfare states. Our action in getting on top of the problems of welfare, reforming welfare and making sure that work pays is key to dealing with our place in the world and making this country competitive. I draw a distinction between that and the attitude of the Labour party, which has opposed every welfare reform proposed by this Government.

[Mr Osborne]

My hon. Friend is right. There was a ludicrous remark—I do not know whether anyone noticed it—from the shadow Chancellor when he said that Labour supports tough welfare reform. Labour Members have voted against every single welfare proposal put to the House. The shadow Chancellor thinks the benefits cap is “too low” and that it is not set at the right level at £26,000. That is the problem. Any view of Britain, and any view of western nations, is that they need to do more to constrain the growth of entitlement spending and more to make sure that welfare pays, and to spend the money that they save on things such as infrastructure in Northern Ireland, broadband, high-speed trains and the Crossrail project under London—the vital economic infrastructure that our country needs.

[Several hon. Members]

rose—

[Mr Osborne]

I will give way to Labour Members in a moment if they can help me answer this question. What on earth is the policy of the Labour party towards an in/out referendum on Europe? The shadow Chancellor was asked that again and again. The question is this: do the Opposition rule out offering an in/out referendum at the next general election—yes or no? What is the answer?

[Chris Williamson]

Perhaps the Chancellor can answer this question. Toyota, just down the road from my constituency and the biggest inward investment in western Europe, came to Derbyshire because it gave access to the European market. Does the Chancellor think that, if an in/out referendum was hanging over this country and Toyota was thinking about investing now, it would take that decision to invest in Derbyshire, or would it take its investment somewhere else inside the EU?

[Mr Osborne]

A lot of those big Japanese car plants came to Britain under a Conservative Government who were offering them a competitive place to do business in the world. I am pleased to say that under this coalition Government we now export more cars than we import for the first time since the mid-1970s, and we will go on having a successful car industry because we have specific policies to back the car sector, but above all because we have cut corporation tax and made this a competitive place in which to do business.

[Several hon. Members]

rose—

[Mr Osborne]

I will give way to whichever Labour MP can answer this question: do the Labour party rule out an in/out referendum on Europe?

[Andy Sawford (Corby) (Lab/Co-op)]

It is six months to the day since the voters of Corby in east Northamptonshire delivered a damning verdict on the Government. The key issues in that by-election were not the preoccupations of the right wingers in the Chancellor’s Tory party, but jobs and health care in this country. But since the Chancellor is so keen to ask us questions, will he answer the question that the hon. Member for Basildon and Billericay (Mr Baron) answered very clearly, which is: if there were an in/out referendum tomorrow, how would the Chancellor vote?

[Mr Osborne]

The policy is this: change the European Union, seek a new settlement, then put that to the British people in a referendum. This debate has revealed that Labour cannot answer the simple question: does it rule out offering an in/out referendum before the next general election? If it cannot answer that question, it will not be listened to on this subject any more, and people will be very, very clear that the only way to get an in/out referendum on Europe is to have a Conservative Government after the next election, so people should vote Conservative in that election and make sure that they have their say.

[Nadhim Zahawi]

Does the Chancellor not agree that the double-speak we heard from the shadow Chancellor and his reluctance to trust the British people feed the people’s mistrust in politics?

--- Later in debate ---

[Madam Deputy Speaker]

I think it implies something. [Interruption.] I would be grateful if the hon. Gentleman did not argue with me, particularly if he wants to be called in this debate. That is a very dangerous route to take. All hon. Members would do well to moderate their language and participation in the debate to a more reasonable level.

[Mr Osborne]

Let me conclude, because I am conscious—

[Ed Balls]

Will the Chancellor give way?

[Mr Osborne]

Of course I will give way.

[Ed Balls]

rose—

[Mr Osborne]

Hold on. I have not given way yet. I will give way to any Labour Member who can answer the question: do they rule out an in/out referendum before the next general election? Yes or no?

[Ed Balls]

To avoid any risk of double-speak, Madam Deputy Speaker, in order to make sure that we have the full facts before us, the Chancellor claimed that he was tackling the welfare bill—[Interruption.] No, no double-speak. Let us be absolutely clear that between 2010-11 and 2012-13, expenditure on benefits has gone up, because of higher unemployment, inflation and other things, by £8.1 billion. To avoid double-speak, will the Chancellor confirm that welfare spending is up by £8 billion in the last two years?

[Mr Osborne]

We have spent more on pensions, and we are proud that we have done so, and we have a triple lock on pensions and pensioners last year got the biggest ever increase in the state pension. As for other areas of the welfare state, we have cut welfare entitlements by £19 billion a year.

Let me conclude, because there is a five-minute limit on Back-Benchers’ contributions. We have spoken about Europe, but many of the economic challenges that we face remain at home. We spoke about banking regulation, and an important part of the legislative programme this year is the Financial Services (Banking Reform) Bill, which is a carry-over Bill. We are making the changes necessary to fix our banking system, ring-fence our retail banks and make sure that we deal with the too-big-to-fail problem. We also have legislation to support small businesses. It will not be the most controversial Bill, because I suspect that the Labour party will not dare to oppose it, but it will be of enormous help to our constituents and to many businesses throughout the country. Our new employment allowance will cut the tax on jobs—

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Not for another year.

[Mr Osborne]

We have to get the legislation because we need a national insurance Bill, which is what—[Interruption.] The hon. Gentleman had 13 years to do something for small businesses, and the only idea he came up with was to put up the small companies’ tax rate.

From next April, every business and every charity will have their employer national insurance contributions bill cut by £2,000 a year. It means that a business will be able to employ four adults on the minimum wage without paying any employer NICs at all. I know that the shadow Chancellor does not want to hear it, because his policy was to put taxes up on jobs. That is what he fought the general election on, and that is what he still talks about when people listen to him in his interviews. That is the point. The Opposition offer more borrowing; we are reducing the deficit. They want to increase the size of government; we want it reduced. They penalise enterprise and wealth creation; we support it. They would put a tax on jobs; we are abolishing it. While they would repeat all the mistakes of the past, we are engaging in the great economic challenges of the future. We are building an economy that will enable Britain to compete and succeed in the world. We are building an economy that helps people who want to work hard and get on. I commend the Queen’s Speech to the House.

[Several hon. Members]

rose—